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    Latest housing finance data shows property market past peak growth phase

    RP Data

    An analysis of the latest housing finance data released by the Australian Bureau of Statistics (ABS) reveals that Australia’s property market has moved through its peak growth phase after registering strong growth for two years.

    RP Data research director Tim Lawless said that the value of investment finance commitments was at a record high, increasing by 2.3 per cent in April, and 29.8 per cent year-on-year. Investors committed to $11 billion worth of housing finance over the month, accounting for 39.4 per cent of all housing finance or 47.8 per cent excluding refinances. However, Mr Lawless believes banking sector regulators may show signs of discomfort with the level of housing market investment given that the proportion of lending to investors is at near-to record highs.

    According to Mr Lawless, investors may now find it harder to secure a property with changes to solid investment fundamentals, particularly in cities where capital gains have been significant and yields are low.

    Over the current growth phase, six-month annualised value growth peaked in November 2013 at 14.3 per cent with investors accounting for 38.5 per cent of all lending; this has since risen to 39.4 per cent. Mr Lawless notes that investment lending outpaced growth in capital city home values. The growth in values peaked but there was a compression of gross rental yields.

    At the low point in values at May 2012, gross rental yields across the combined capital cities were recorded at 4.3 per cent; currently yields are 4.0 per cent.

    Sydney and Melbourne are seeing the highest levels of investment activity among all capital cities with Sydney providing gross rental yields at 4.0 per cent and Melbourne at 3.6 per cent, down from 4.5 per cent and 3.8 per cent respectively in May 2012. Current investment activity in both cities is heavily focussed on the inner city unit market with approvals for new units at high levels.

    With a high volume of investment grade unit stock in the pipeline, it will be interesting to see if these approvals convert to construction and the potential impact of a large supply on values, rents and vacancy rates. 

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