COVID-19 has shocked the levels of supply and demand across a number of rental markets in Queensland over the last six months, particularly in the Brisbane CBD, where rental vacancies peaked at 14 per cent last June 2020.
Regions with high levels of supply of transient accommodation such as the Gold Coast have also been affected, with vacancy rate peaking at 10 per cent back in May 2020.
However, unlike the city centre, Gold Coast, along with other regional markets, has made a remarkable recovery in the last six months, recording the tightest rental results according to the latest vacancy data issued by the Real Estate institute of Queensland (REIQ).
Queensland’s latest quarterly rental vacancy rates show that 100 per cent of the state’s regions have experienced a drop in vacancies, with 96 per cent falling within a tight rental inventory range (zero to 2.5 per cent) and 4 per cent within a healthy rental inventory range (2.5 to 3.5 per cent) or above.
Figures for July to September 2020 show the Gold Coast’s southern areas recorded some of the lowest vacancies, with an extremely tight median of 0.3 per cent. Looking closer, the suburbs with the lowest vacancy rates were Burleigh Heads (0.4 per cent), Coolangatta (0.2 per cent), Currumbin (0.6 per cent), Palm Beach (0.1 per cent) and Miami (0.4 per cent).
In the Gold Coast’s west, it’s a similar scenario with a mean average of 1 per cent (down from 2.2 per cent) across suburbs such as Mudgeeraba (0.4 per cent), Nerang (0.5 per cent) and Oxenford (0.3 per cent), while up north, its tight conditions abound with a median vacancy of 1.3 per cent (down from 3.2 per cent) in areas including Coomera (0.7 per cent), Helensvale (1.6 per cent), Hope Island (1.6 per cent), Southport (1.5 per cent), Pimpama (0.4 per cent) and Upper Coomera (0.7 per cent).
Meanwhile, the downtown Surfers Paradise region fell from 5 per cent to 2.1 per cent, placing it in its tightest conditions in more than two years.
According to REIQ chief executive Antonia Mercorella: “With Queensland’s overall quarterly vacancy rate retracting from 2.44 per cent to 1.49 per cent over three months, this is the first time since the outbreak of COVID-19 that every market is showing growth as vacancy rates continue to shrink. Needless to say our rental market is under enormous pressure with around 90 per cent of the State now experiencing extremely tight conditions.”
“The pandemic has definitely caused a shift for a lot of people in not only the way they want to live but where they want to live, and it seems South-East Queensland is our biggest beneficiary these last three months.”
With a 3.7 per cent boost in new jobs across Queensland during the same three months (approximately 90,000), consumer confidence rising four consecutive months to 98.25 points and a steady inflow of state migration of almost 30,000 over the last six months, the rental sector plays a critical role in Queensland’s housing system.
In its current condition, the role and size of the state’s investor market have never been so important, Ms Mercorella highlighted.
“As more people choose to make Queensland their home, it’s imperative we act now to support and safeguard the rental housing needs of current and future generations,” she explained.
“Over 36 per cent of Queensland’s population rent (1.2 million) and 90 per cent of that housing is provided by private owners. Given the current and future rental needs of the community, it’s critical we continue to attract property investors to improve supply and keep pace with demand and maintain rental affordability.”
The Property Investment Professionals of Australia’s (PIPA) Annual Investor Sentiment Survey 2020 revealed that 67 per cent of investors are still looking to purchase property. Queensland rated highest for investment prospects (36 per cent), with investors keen to look for regional opportunities.
According to Ms Mercorella, private property owners provide the majority of Queensland’s rental housing to the state’s ever-growing tenant community.
“[They] are often incorrectly categorised as wealthy individuals hoarding far more than their fair share of real estate. The reality is however very different. These are ‘ordinary’ people comprising hard-working Australians… They have made financial sacrifices to improve their future position for retirement, which is still decades away for most investors,” she said.
The two non-major banks have announced that they are reducing interest rates on a range of new-to-bank investor loan applications.
ING has announced that, from today (23 October), investor rates will decrease for new customers.
The investor variable rates for loans between $150,000 and $1 million will decrease by 50 basis points. The lowest variable rate will be 2.69 per cent for new customers with a Mortgage Simplifier paying principal and interest on a home loan with a loan-to-value ratio (LVR) less or equal to 80 per cent of the property value.
The Orange Advantage loans will also drop by 50 basis points to start from 3.08 per cent (principal and interest).
Meanwhile, the two-year and three-year fixed rate loans will decrease by 0.45 per cent, making the lowest available investor fixed rate 2.49 per cent (for those paying principal and interest), or 2.69 per cent for those paying interest-only.
ING’s head of third party distribution and director mortgages, Glenn Gibson, commented: “While our primary focus remains on owner-occupier loan, the current market conditions provide us with an opportunity to expand our investor loan offering.”
Citi also recently changed its rates, dropping fixed rates by up to 30 basis points for longer-period terms.
The three-year mixed home loan for investors paying P&I now starts from 2.39 per cent, with interest-only being 2.59 per cent.
Citi’s Basic, Standard and Offset product variable rates have also reduced for owner-occupier and investor applications on both principal and interest and interest-only repayments, with the lowest variable mortgages for investors paying P&I starting from 2.79 per cent.
Investors look to refinance, use brokers
The move come hot on the heels of a new survey from the Property Investment Professionals of Australia (PIPA), which revealed that 36 per cent of investors would consider moving their portfolio to take advantage of interest rates just half a percentage point lower than their existing home loans.
The 2020 Annual Investor Sentiment Survey found that 65 per cent of investors would consider refinancing for an interest rate differential of up to one percentage point.
Commenting on the findings, Peter Koulizos, PIPA chairman, observed that the current record-low interest rate environment is encouraging investors to seek better home loan deals.
“Investors have had to pay unfairly high interest rates ever since they were unnecessarily targeted by APRA a number of years ago,” Mr Koulizos said.’
“Investor and interest-only interest rates have reduced over recent times but are still significantly higher than owner-occupier home loans.
“Many investors are also coming off fixed rates and are refinancing to obtain rates that are one or, sometimes, two percentage points lower than what they had been paying.”
Mr Koulizos also noted that the majority of investors used brokers to secure finance over the past year, and 80 per cent of investor respondents said they would use a broker to secure finance for their next property purchase.
“Fewer than 10 per cent of investors indicated they would secure finance directly from a bank for their next investment property loan,” Mr Koulizos said.
The Property Investment Professionals of Australia Board of Directors are pleased to invite all members to the 2020 Annual General Meeting to be held on Tuesday 10th November 2020 (AEDT). Due to COVID-19 restrictions, the AGM will be a virtual meeting.
As a PIPA member, your participation in the AGM is important and a valuable opportunity for the Board to hear feedback and consider the performance of the association with members.
When: Tuesday 10th November 2020 Time: 11.00 am (AEDT) Where: Virtual Meeting (due to COVID-19 restrictions)
To register for the virtual PIPA 2020 AGM, please complete the registration form. Once registered you will receive a confirmation email containing information about joining the meeting.
The Board of Directors look forward to welcoming you to the PIPA 2020 AGM and sharing our progress with you.
Investor lending has dropped to record lows around the country, but about a third of property investors are watching rates closely in the hope of refinancing.
Investor lending dropped to 24 per cent in August, according to figures from the Australian Bureau of Statistics (ABS), a steep tumble from the decade average of 36 per cent.
All states are feeling the pain, but analysts believe the recovery will be a drawn out process for the nation’s largest two.
“… From an affordability and yield perspective, smaller capital city markets may see increasing popularity from investors in the coming months,” Eliza Owen said, head of research at CoreLogic.
“For the traditional investor markets, such as inner-city Sydney and Melbourne, COVID-19 has triggered a further retreat of investors that is likely to last until overseas migration and travel resumes.”
Investor lending has been trending downwards due to macroprudential measures introduced about five years ago in a bid to tame rising housing prices.
But the COVID-19 pandemic — ushering in sweeping changes to how people conduct business, socialise and go about their everyday lives — has made the fall sharper, analysts said.
Border lockdowns, instituted as a health measure to stop the spread of COVID-19, have all but stopped international students and other migrants from entering the country — eliminating a key cohort that would typically rent properties in Sydney and Melbourne.
“A year ago in August 2019, almost 55,000 students arrived in Australia to study,” Craig James said, chief economist at CommSec. “In August this year, 50 students came to Australia.”
A third of property investors want a better deal — likely from brokers
About 36 per cent of property investors — many containing multiple properties in their portfolio — are considering a bulk refinance if they find rates half a per cent lower than their existing loan, according to the Property Investment Professionals of Australia (PIPA).
The savings from lower rates would help free up cash flow for investors who have passed on discounts to renters, often leaving them out of pocket, Peter Koulizos said, chairman of PIPA.
“Investor and interest-only interest rates have reduced over recent times but are still significantly higher than owner occupier home loans,” he said.
“Many investors are also coming off fixed rates and are refinancing to obtain rates that are one or, sometimes, two percentage points lower than what they had been paying.”
The majority of investors relied on mortgage brokers to negotiate their loans. PIPA said about 71 per cent of its investors used a broker in the past, and that 80 per cent indicated they’d rely on mortgage brokers for their next purchase.
Investor rates have fractionally fallen over three months
In the last three months, 52 of the 123 lenders in the RateCity database have lowered their interest rates on investor loans by an average of 0.10 per cent.
The most competitive variable rate loan is being offered by Pacific Mortgage Group. They’re offering a principal-plus-interest loan at 2.49 per cent for both the advertised and comparison rate if borrowers can meet a loan-to-value ratio of 75 per cent.
The next variable rate loan following it is from Homestar Finance. Its principal-plus-interest loan offers a 2.49 per cent advertised rate with a comparison rate of 2.52 per cent, for loans below $850,000 where the loan-to-value ratio is 70 per cent.
Rents are recovering — except in two capital cities
Rents widely increased across the country over the September quarter, according to the experts at Domain, but two capital cities anchored the national average for unit rents.
Housing rents increased by 3.2 per cent on average over the same quarter a year earlier, according to Domain’s rental report, recovering from the losses incurred during the first COVID-19 lockdown in March.
But unit rents dropped on average across the country by 2.9 per cent, when compared to the same quarter a year earlier, despite all but two capital cities recording growth.
Drops of 4.8 per cent in Sydney and Melbourne were enough to offset any gains made across the country, largely due to the fall in international students, migrants and travellers.
“Inner-city areas … are more susceptible to changes in overseas migration and international students, tourism and job losses associated with COVID-19,” Dr Nicola Powell said, senior research analyst at Domain.
“Unit rents (in Sydney) have now fallen $55 a week from peak prices in 2017 and are now the lowest in six years.”
Brisbane is set to become a property investment hotspot next year, as demand for land continues to swell, according to the latest market update from Herron Todd White.
Increased demand for land is evident across markets in Brisbane. This strong interest helps support prices for land, particularly in the city’s growth corridors where properties sell out in a matter of weeks, said David Notley, director at HTW.
“As to whether this state of affairs will continue into the medium and long term is entirely dependent on an extension to the builder’s grant, interest-rate fluctuations and also availability of stock,” he said. “If these variables remain sound, then demand will remain strong.”
There are several factors that are influencing the confidence of potential buyers and investors in the city. In fact, a recent survey by the Property Investment Professionals of Australia showed that a third of investors believe Brisbane is poised to become the best capital city for investment over the next year.
Notley said a big contributor that continues to uplift sentiment in Brisbane is the strong interstate migration to Queensland prior to the COVID-19 pandemic. A report from the Australian Bureau of Statistics showed that Queensland had a net gain of 22,831 people within the country. This figure was almost double its 10-year average of 12,409.
“Of course, that number has plummeted since the boom gate came down on our hard borders, but selling agents are reporting a rise in enquiry from out-of-towners. There’s a sense of anticipation that we’ll see some serious improvement in interstate arrivals once folk can cross state lines more freely,” Notley said.
The low interest-rate environment is also a significant factor. The relatively cheap costs of borrowing money have provided an opportunity for many would-be buyers to break into the market, Notley said. The easier access to finance is supplemented by government grants, further boosting the capacity of many buyers.
“Brisbane and its surrounds offer a relatively inexpensive option for buyers — and that’s a key incentive at present. People are being very cautious with their money in the shadow of COVID. Brisbane provides buyers with the chance to own a new home within easy reach of a major CBD at substantially less than it would cost in Sydney or Melbourne,”
