What’s happened to property investors

Australia’s housing market remains resilient. After 10 straight months of decline, Core Logic recorded a rise in the national housing market index of .6% as at the end of March 2023. It appears that even though interest rates are rising and there is the expectation the economy will slow further, other factors are putting upwards pressure on house prices. This includes low stock from the supply side (listings are currently some 20% down on the 5 year average), and a tight rental market and increasing immigration numbers propping up demand with some of these are now looking to purchase.

History will show that the full impact of monetary policy tends to lag, and in our current market this appears true with the full impact of monetary policy still to flow through – and there appears two main factors contributing to this:

  • A high proportion of fixed rate borrowers yet to feel the impact of the rate rises. The RBA estimating some 880 mortgage holders coming off fixed rate in 2023 and 450,000 in 2024
  • Secondly a lot of mortgage holders built a savings buffer through COVID that shielded the full impact of the rate rises – these buffers now being eaten into.

With the RBA remaining steadfast to its inflationary target to ensure inflation does not become entrenched, we approach the remainder of this calendar year with a cautionary approach, and while the housing market has some headwinds and tailwinds, the likelihood is of more pain to come before some light on the horizon.

What about investors?

It can be argued that a market downturn presents a perfect time for the savvy investor looking to buy a quality asset at a good price, and right now we have a confluence of factors impacting investors:

  • Low vacancy rates – below 1% in some capitals are driving up rental yields
  • We have been in a falling market creating opportunities for investors to pick up the margin when it rises.
  • Increased immigration with some 650,000 skilled workers and students set to arrive in the next couple of years – increasing demand for rentals.
  • Less competition with homebuyers out of the market.
  • Potentially some interest rate stability.
  • Negative gearing is still attractive to offset the additional interest cost rising rates are bringing.

However, despite this ABS data reveals investor credit flows are some 32.6% lower than a year ago.

I believe there are 3 main factors creating this extended pause in investor behaviour.

  • Harder to hold.

Essentially the cost to hold a property is outrunning the increase in income. While rents are rising – for example in Sydney rental income has increased by approximately $340/ month, an investor with a $500,000 loan will have seen repayment rise some $1,100/ month. On top of this in this inflationary environment, maintenance costs, strata and agent fees are all on the rise as well.

  • Harder to add to a portfolio.

With rising rates and tightening credit policy it is becoming harder for investors to qualify for a loan. For an investor, on a rate of 6%, the assessment rate will be 9%. This is making it harder to qualify for a loan – especially those with multiple properties seeking leverage.

  •  Investor disincentives and policy uncertainty.

There have been a number of disincentives from all levels of government impacting investors. For example, winding back depreciation benefits in 2017, a premium on mortgager rates, a premium on stamp duty in some states, less control over the asset well as uncertainty around the future policy environment, for example negative gearing.

 For those looking to invest – the core fundamentals remain the same

  • Buy when you can afford to buy and when you can afford to hold for the long term
  • Build your strategy – whether it be to live off the income, maximise equity and build a portfolio or a combination.
  • Do your homework:
    • Does the property have strong capital growth potential?
    • Understand the region, its infrastructure and economy – will it be easy to find tenants, what rental income can be expected and what are comparative prices?
    • Analyse the cash flow: What is affordable and the potential income and costs to hold the property.

And finally, as with investing in any asset class remain disciplined and keep emotion to one. A good quality asset will stand the test of time and for most, property is a long-term investment, not bound by the short-term sentiment of market emotion.


Anthony Landahl | Managing Director Equilibria Finance

This is for general information purposes only and does not constitute advice. With all of these options there are a number of considerations outside the scope of what is covered in this article that you need to understand to ensure your personal circumstances are taken into consideration.

Equilibria Finance is a mortgage broking practice specialising in delivering residential and commercial mortgage and business and asset finance solutions to the clients of financial advice and accounting practices.

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