The expiry of the interest-only period is set to place 13 per cent of property investors in financial stress, according to new research.
According to a survey of 820 property investors from the Property Investment Professionals of Australia (PIPA), 13 per cent of interest-only borrowers were expecting to “struggle” when they begin repaying principal and interest, with a further 13 per cent “unsure” and 61 per cent confident in their ability to meet repayments.
Of those that said they would struggle to meet principal and interest repayments, 5.5 per cent said they have sold, or would have to sell, an investment property to meet loan commitments.
The results come amid concerns from the Reserve Bank of Australia (RBA) about the potential for some borrowers to fall into mortgage stress following the expiry of the interest-only period, with the bank claiming that such borrowers could pay an additional 30 to 40 per cent in repayments per year.
Additionally, the survey found that 48 per cent of investors said that changes to investor lending policies have impacted their ability to secure finance compared to 43 per cent when the survey was conducted last year.
Property investors also expressed concern about potential changes to negative gearing and capital gains tax (CGT) policies, with 45 per cent of respondents indicating they would reconsider their future investment plans because of proposed changes.
“The financial services crackdown on investors is having an impact on sentiment,” PIPA chairman Peter Koulizos said.
“Turmoil in government ranks that saw a change in the prime ministership has translated into increased opinion poll support for the opposition, so investors face the very real prospect of seeing tax deductions cut, and this is playing into their purchasing decisions.”
The survey revealed that 60 per cent of investors said that their portfolio would be positively geared within five years, and 71 per cent believed changing negative gearing and capital gains tax policy would not improve housing affordability.
Investors undeterred by slowing housing market
The research has also found that 77 per cent of respondents thought that now is a good time to invest in property, with 52 per cent were looking to purchase a property in the next six to 12 months.
Moreover, despite the reported housing market slowdown in Sydney and Melbourne, 90 per cent of investors said that concerns about price falls would not impede their investment plans.
Brisbane was the most favoured capital city for investors, with 44 per cent believing that it was the capital city with the best investment prospects, up from 43 per cent last year.
Conversely, approximately 26 per cent of investors held a favourable view of the Melbourne market, down from 32 per cent last year, while only 8 per cent chose Sydney and believed it has investment potential.
“The affordability of Brisbane compared to Sydney and Melbourne has really come into sharp focus in the past year,” Mr Koulizos continued.
“Not only are investors considering the Sunshine State capital as an investment location, a growing number are choosing to migrate to take advantage of the significant value gap as well as Queensland’s enviable lifestyle and strengthening economy.”
The survey also found that the number of investors looking to buy a house has remained flat at 67 per cent compared to 2017; however, the proportion of investors looking to buy units or apartments has fallen to 6.5 per cent from 9.3 per cent in 2017.
The survey indicated that 72 per cent of investors remained keen on opportunities to invest in metropolitan markets, while coastal locations had lost favourability, down to 8 per cent from 12 per cent in 2017.
Meanwhile, the proportion of investors that said regional markets were the most appealing had risen to 20 per cent from 15 per cent in 2017.
Rentvesting increasing in popularity
The survey also reported that a majority (63 per cent) of respondents said they would consider rentvesting as a property investment strategy, with a third (36 per cent) of first-time investors also renters.
“Of all respondents who purchased in the past 12 months, 20 per cent purchased their first investment property in the past year,” Mr Koulizos added.
“Among this first-time cohort, the rise of the rentvestor is well and truly established, with more than a third continuing to rent while owning an investment property elsewhere.”
Investors calling for greater professional standards
The research also found that over 98 per cent of property investors have some form of plan or strategy, with almost 28 per cent having a detailed and modelled plan designed to match long-term investment goals.
However, an overwhelming majority of respondents (95 per cent) thought that any provider of advice should have formal training, and almost all (90 per cent) believed that an adviser should be regulated and/or licensed.
Further, 87 per cent of survey respondents said that they believed property investors need more education about the risks and potential benefits of investing in property.
“The survey also again highlights the need for improved professional standards and regulation of the property investment advice industry,” Mr Koulizos said.
“Indeed, property investors are crying out for more rigorous standards in the real estate investment advisory sector.
“We are pleased that PIPA continues to be recognised as the peak professional association for those working in the industry as we continue to drive this agenda.”
Reporter, Mortgage Business, 25 September 2018