The property market has changed again in 2023, leaving fewer investors in the market. Take a look at what this means for property managers.
2023 is proving to be an interesting year when it comes to property investment as there has been a slowdown for a few different reasons.
Firstly, the rental market remains incredibly tight, with vacancy rates sitting at all-time lows. In Melbourne, for example, the rate was only 1.0% in early 2023.
Meanwhile, Australian rent values increased 24.1% between September 2020 and February 2023. However, as reported by CoreLogic, the number of investors buying dwellings has been falling. In March last year, investment property loan approvals reached 21,663. By January 2023, the figure had halved to around 11,485.
Interest rates
You would think high rental vacancy would increase investor interest. However, there is one big factor at play; interest rates.
Over the last twelve months, interest rates have risen ten times. Many investors found their mortgage increased by around $1,000 or even more per month. While rental prices have been raised to reflect this, as CoreLogic also pointed out, since the start of a rental upswing in September 2020, mortgage payments for new investment mortgages have, on average, increased faster than rents.
Taking on a home loan costs a great deal more than it used to thanks to rising interest rates. This has first time home buyers remaining as renters because they can’t afford to buy, and investors feeling nervous about taking on a large investment property loan.
Fixed rate expiry
To add fuel to this fire, many people who were able to fix their interest rates at highly competitive levels while they were low two years ago are now sitting on the precipice of those loan agreements expiring. Experts are predicting a ‘fixed rate cliff’ and forecasting a glut of investment property sales over the next few months because of this.
Slow capital growth
There is also the change in capital growth results. The pandemic caused a huge spike and many homeowners were ‘earning’ $1,000 - $1,500 per week as their properties increased in value.
Because of this spike, investors are feeling nervous about there being a market slowdown, which will result in lacklustre capital gains. Many are adopting a ‘wait and see’ approach while watching how property prices are performing.
Off-the-plan is off-the-boil
Meanwhile, labour shortages, construction companies collapsing and the rising cost of materials have taken the shine away from off-the-plan investing.
Stamp duty and tax reduction incentives are currently limited, which have taken even more investors and first home buyers out of the market.
Compliance
Finally, changes to legislation in states like Victoria have resulted in some rental property owners deciding it’s too hard to upgrade their investments and stay in line with all the rules, especially if they do not have a property manager who is holding their hand throughout the changes and helping them understand what needs to be done.
So, who is investing in 2023?
There is always an investor who is motivated to ‘zig’ while others are ‘zagging’. These individuals are cashed up and are grabbing opportunities to secure positively-geared investments at good prices. When they have found those opportunities, they will be seeking a property manager so real estate businesses need to find ways to connect with them early.
Meanwhile, depending on where your rent roll is based, you may have ‘rentvestors’ who want to put their money in affordable property but live in a more expensive area or a larger home.
As property expert Michael Yardney explains, there are new rules for investing in 2023. He says he will research and invest in quality homes, with capital growth potential, in capital cities. For him, it’s all about what he calls ‘investment grade’ properties, which appeal to a wide range of affluent owner-occupiers, are in the right location, have street appeal, and offer security through things like off-street parking.
As a rent roll manager, you can seek to maintain your portfolio this year by seeking out quality properties which deliver good income, rather than having a large number of properties under management at lower rates.
In time, the pendulum will swing, as it always does. Right now, it’s about focusing on quality over quantity and nurturing the clients you have.