Victoria’s property market is being overlooked by investors in favour of states experiencing growth

The prospect of strong capital growth and rising rents are enticing more investors back into the housing market, with investment loans up almost a third.

Investors, however, are being selective in where they park their money, preferring outperforming markets like Western Australia, Queensland and New South Wales over lagging ones like Victoria.

Australian Bureau of Statistics data on Friday showed the total value of home loans rose by a stronger-than-expected 3.1% to $27.6 billion in March, 18% higher than a year earlier.

A total of $17.5 billion in owner-occupied loans were made during the month, a rise of 2.8% over the previous month.

Investment loans grew by 3.8% to $10.2 billion in March 2023, up 31.1% from March 2023 and approaching record levels seen during the peak of 2022.

The size and number of investment loans have both grown strongly over the past year, according to ABS head of finance statistics Mish Tan.

“This is consistent with historically low vacancy rates over the same period, and CPI rental prices rising 7.8% annually to March quarter 2024.”

The Consumer Price Index (CPI) rose by a stronger-than-expected 1% during the March quarter, according to inflation data released last week.

Nevertheless, PropTrack’s director of economic research Cameron Kusher said the investor resurgence is very much a state-specific phenomenon, with Queensland (+45.3% year-on-year) and Western Australia (+63.8% year-on-year) leading the way.

According to Mr Kusher, these markets are extremely attractive to investors due to their relatively high rental yields and lower prices than Victoria and NSW.

Due to the Reserve Bank’s rapid increase in interest rates during 2022, investor lending substantially declined.

“It is likely that the stable interest rate environment and strong property price increases over the past year, along with higher interest rates improving tax deductibility from investments, low rental stock volumes, and strong rental price increases are encouraging investors to return.”

Since the pandemic, the national vacancy rate has fallen to a near-record low of 1.11%, according to PropTrack.

Despite tight rental conditions, Mr Kusher said investors are still selling out.

It is not clear whether these new investors are renting their properties long-term or short-term, as many investors are exiting the market.

The rental shortage can be addressed instantly with more rental properties and more investors, but it will take some time to show up in the supply.”

In favor of smaller states, investors turn their backs on Victoria

In March, investors borrowed more for housing in Queensland than Victoria for the first time since 2008, as weaker prices and concerns about land tax and tenancy laws discouraged buyers.

Mr Kusher said that lending to investors in Victoria has increased 6.3% over the past year, while lending to investors in Queensland has increased 45.3% over the past year.

Due to higher property taxes in Victoria, people are instead investing in places like Queensland and WA, or in other asset classes instead.

PropTrack’s latest Home Price Index shows Melbourne prices declined by 0.1% in April, which means prices are only 1.1% higher than a year ago and 3.4% lower than the previous peak.

After falling 0.1% in April, regional Victoria property prices remain 0.9% lower than a year ago.

Over the past year, Brisbane prices have surged 12.8%, surpassing Melbourne for the first time in 14 years.

April’s home price changes across the country

There was also a record high in investment lending in Western Australia, where property prices soared by more than 20% in Perth over the past year, and 10% in regional areas. Investor lending in South Australia is also approaching record levels.

According to Mr Kusher, capital cities in these states have seen the highest increases in property values, but they are still cheaper than properties in Sydney and Melbourne.

There is little new housing construction and rental listings are extremely low, making it an ideal investment environment.

The best time to invest in these markets was a few years ago, but investors still see further upside.”

Buyer’s agent Kate Hill from Adviseable cautioned those looking to jump on the booming Perth market without doing their homework.

“Perth has been going bonkers for the past couple of years. When you [buy] and it’s in the media, the bulk of capital growth has already occurred,” she said.

In contrast, she said, ‘smart’ investors were taking advantage of the weakened conditions in the south, given its solid prospects for cash flow and capital growth.

In addition to fewer buyers on the ground, property prices have remained subdued, and Melbourne’s vacancy rate is only 1%,” said Ms Hill.

As a result of the exodus of investors from the state, rents will likely increase, which is a terrible situation for renters.”