Lending restrictions to blame for undersupply

Lending restrictions to blame for undersupply

The current rental undersupply was years in the making – a result of the lending restrictions that were implemented in 2017, according to one property expert.

Many capital city markets have been hitting record-low vacancy rates, with the quick absorption of properties ultimately leading to a critical undersupply.

While this trend appears to have emerged as the property market rebounds from COVID-19, the pandemic may not be entirely to blame, Property Investment Professionals of Australia (PIPA) chairman Peter Koulizos said.

According to Mr Koulizos, the lending restrictions that kicked off in March 2017 saw a significant decline in investor activity, which has resulted in a limited supply of rental stock coming into the market.

Fast forward to May 2020, the Australian Bureau of Statistics (ABS) revealed that investor activity has now reached a 20-year low.

“Investor activity dropped about 50 per cent from March 2017 to May 2020 because of the lending restrictions that were applied carte blanche to investors around the nation four years ago,” Ms Koulizos said.

“Back then, the restrictions came into effect because of the strong property price growth in Sydney, but investors everywhere were also blocked from securing finance even in markets with benign market conditions at the time, such as PerthAdelaide and Brisbane.”

Regional locations, in particular, are experiencing more pressure due to an increase in migration towards lifestyle areas, Mr Koulizos said.

“Demand for rental properties in many regional locations – such as the Sunshine Coast in Queensland, the Central Coast of New South Wales, and the South West of Western Australia – is far outweighing supply with rental prices skyrocketing over the past year,” the chairman continued.

“This critical situation is forcing some renters to move further afield because they can no longer afford to live in a region that they have sometimes called home for decades.”

With investor activity yet to catch up and rebalance rental supply and demand, Mr Koulizos called on policymakers to avoid making the same mistake again and refrain from intervening in the market cycles.

According to him, the critical undersupply will definitely not change overnight, but nevertheless, the market “will always move through their peaks and troughs of their own accord”.

Allowing the natural market cycle to take place will ultimately save Australians from avoidable long-term repercussions, the chairman said.

“Instigating policies to solve a supposed short-term problem can have long-term ramifications, which is the drastic situation that tens of thousands of tenants are now experiencing,” Mr Koulizos concluded.

 

Bianca Dabu, Smart Property Investment, 10 May 2021
https://www.smartpropertyinvestment.com.au/research/22671-lending-restrictions-to-blame-for-undersupply-pipa

PIPA Queensland Breakfast Seminar

PIPA Queensland Breakfast Seminar

The 2021 PIPA Brisbane breakfast seminar is on Thursday 15 July 2021 at the Sofitel Brisbane Central.

The breakfast will be a chance to hear from PIPA chairman Peter Koulizos as well as from two expert speakers.

  • PIPA chairman Peter Koulizos will provide an update on the association and the national market.
  • REIQ CEO Antonia Mercorella will outline how state-based legislation is impacting property investors now and into the future.
  • Herron Todd White Director David Hyne will provide insights into the challenges of assessing property value in rising market conditions.

A light breakfast will be served.

PIPA members will earn five CPD points from attending. Of course, it will also be an opportunity for everyone to network, so it really is a must-attend event.

Don’t delay in registering as you really don’t want to miss it!

Event:             2021 PIPA Brisbane breakfast seminar

Date:               Thursday 15 July 2021

Where:           Sofitel Brisbane Central, 249 Turbot Street, Brisbane City, QLD, 4000

Time:              7am for a 7.30am start. The event will conclude by 9am.

Cost:               $25 for PIPA members. $55 for non-members. A light breakfast will be served.

You must register for this event so we can confirm final numbers. To register, click here.

 

Lending restrictions have led to rental undersupply: PIPA

Lending restrictions have led to rental undersupply: PIPA

Restrictions that were brought in to curb investor lending in 2017 have led to a “critical undersupply” of rental properties in capital cities, according to the group.

The chairman of the Property Investment Professionals of Australia (PIPA) has suggested that rental market vacancies, particularly in smaller capital cities, are near all-time lows as a result of historic lending curbs, exacerbated by the COVID-19 pandemic.

PIPA chairman Peter Koulizos stated that a number of capital cities (excluding Sydney and Melbourne), as well as regional locations, currently had vacancy rates of less than 1 per cent – noting that this is well below what is considered to be “balanced” vacancy rates (3 per cent).

He highlighted recent SQM Research which found that Brisbane’s vacancy rate fell from 3.5 per cent in March 2017 to 1.5 per cent in March 2021, Adelaide’s rate had dropped from 1.7 per cent to 0.8 per cent in the same period, while Perth’s rates dropped from 5.0 per cent to 0.9 per cent.

He added that the lack of stock had also seen the national asking rent increase, too, with rental prices for houses rising 15.9 per cent over the past year and asking rent for units having risen by 7.6 per cent over the same period.

According to the PIPA chairman, part of the issue of undersupply – especially in regional areas – was due to more Australians moving to live in “lifestyle” areas outside of the cities.

“Demand for rental properties in many regional locations – such as the Sunshine Coast in Queensland, the Central Coast of New South Wales, and the South West of Western Australia – is far outweighing supply, with rental prices skyrocketing over the past year,” he said.

“This critical situation is forcing some renters to move further afield because they can no longer afford to live in a region that they have sometimes called home for decades.”

Mr Koulizos outlined that even the largest cities of Sydney and Melbourne were experiencing an “undersupply” of rental properties, despite people moving out of the inner-city areas and the loss of international students and overseas migrants due to COVID-19 border restrictions.

However, he added that a larger factor impacting the volume of rental properties on market was the fact that fewer investors had come into market as a result of lending restrictions that were brought into effect in March 2017, to curb rising levels of “riskier” interest-only lending.

“Investor activity dropped about 50 per cent from March 2017 to May 2020 because of the lending restrictions that were applied carte blanche to investors around the nation four years ago,” he said.

“Back then, the restrictions came into effect because of the strong property price growth in Sydney, but investors everywhere were also blocked from securing finance even in markets with benign market conditions at the time, such as Perth, Adelaide and Brisbane.”

While investor lending has started to recover (recent data from the Australian Bureau of Statistics shows that lending to investors was 54.3 per cent higher in March 2021 than March 2020, and accounted for more than half of the rise in housing loan commitments in March 2021), Mr Koulizos said it was “imperative” that policymakers “don’t make the same mistake again” as investor activity was still “well below” what is needed to improve the supply of rental properties around the nation.

“Unfortunately, the critical undersupply of rental properties is not a situation that will change overnight – just like it wasn’t a situation that happened over a short period of time either,” he said.

“It is the industry’s belief that market cycles need to be allowed to run their course without any type of outside intervention because they will always move through their peaks and troughs of their own accord.

“Instigating policies to solve a supposed short-term problem can have long-term ramifications, which is the drastic situation that tens of thousands of tenants are now experiencing.”

While the PIPA chairman issued the warning, the deputy chair of APRA, John Lonsdale, told the COBA 2021 CEO & Directors Forum last week that, “in aggregate, we are not seeing a return to higher-risk lending, particularly in areas where [APRA has] intervened in the past, such as investor and interest-only loans”.

Mr Lonsdale added: “However, it is important that standards are maintained, monitored and tested. Recently, we wrote to the 14 largest ADIs requesting more detailed data on their lending portfolios, and seeking assurances from boards regarding lending standards.

“All boards should be closely monitoring their lending standards, comfortable with their risk appetite and testing whether serviceability policies used to assess borrowers remain prudent in an environment of extremely low interest rates.”

 

Annie Kane, Mortgage Business, 10 May 2021
https://www.mortgagebusiness.com.au/breaking-news/15624-lending-restrictions-have-led-to-rental-undersupply-pipa

What’s causing the “critical” undersupply in rental markets?

What’s causing the “critical” undersupply in rental markets?

Australia’s rental markets are currently under a “critical undersupply” as investor activity softens, according to the latest analysis by the Property Investment Professionals of Australia (PIPA).

The analysis showed that some smaller capital cities are currently struggling with substantial undersupply of rental properties as vacancy rates hit record lows.

Recent reports from SQM Research show that over the period covering March 2017 to March 2021, vacancy rates have fallen substantially in Brisbane (3.5% to 1.5%), Perth (5% to 0.9%), and Adelaide (1.7% to 0.8%).

Even in major markets of Sydney, Melbourne, and Queensland, undersupply was also apparent, said Peter Koulizos, chairperson of PIPA.

“Vacancy rates in inner-city Sydney and Melbourne have spiked over the past year due to the loss of international students and overseas migrants, but even many suburbs in these cities are also experiencing an undersupply of rental properties,” he said.

Koulizos said this undersupply was a result of the lending restrictions introduced in 2017 that dampened investor activity.

The declining investor presence was quite apparent, particularly in May last year when activity from the segment slumped to a 20-year low. Activity has dropped by about 50% since the start of the restrictions.

“Back then, the restrictions came into effect because of the strong property price growth in Sydney, but investors everywhere were also blocked from securing finance even in markets with benign market conditions at the time, such as Perth, Adelaide and Brisbane,” Koulizos said.

Given the situation of the rental market, Koulizos believes it is crucial for policymakers to not make the same mistakes in their strategies to control investor activity.

“Instigating policies to solve a supposed short-term problem can have long-term ramifications, which is the drastic situation that tens of thousands of tenants are now experiencing,” he said.

Gerv Tacadena, Your Investment Property, 10 May 2021
https://www.yourinvestmentpropertymag.com.au/news/whats-causing-the-critical-undersupply-in-rental-markets-276783.aspx

 

PIPA CEO speaks out about investors being kept out of rental market

PIPA CEO speaks out about investors being kept out of rental market

The CEO of the peak body for property investors has spoken out about the structural problems in the rental industry that are keeping investors out of the marketplace.

Vacancy rates in Australia are currently highly uneven: in Sydney and Melbourne, they are above the recommended 3%, but everywhere else, they are well below. In some regional capitals, such as Hobart, they are below 1%.

The pandemic has seen an above average amount of vacant rental properties in Sydney and Melbourne as international students and new migrants are no longer arriving, but in other areas, a combination of lack of investors and tree changers buying homes has seen a squeeze on the market.

Peter Koulizos, CEO of the Property Investment Professionals of Australia (PIPA), told Australian Broker that the problems in the market date back to before the COVID-19 pandemic.

“You see a very high correlation – and we feel it is a causation – that starts in March 2017, when APRA put restrictions that banks were to place on investors,” he said. “Investors needed a bigger deposit to buy investment property and they needed a to have higher interest rate on their loan.”

“As a result, there were less investors interested in buying rental property. Therefore, if there’s fewer rental properties, there’s fewer options for renters. If you decrease supply, you increase rental prices.”

The effect of this decision was that it treated investors across the nation the same, even though the problem of spiking investment property prices was localised to Sydney. Now, after the pandemic, the problems are seen even more starkly.

“It’s like using a huge hammer to punch in a small nail,” said Koulizos. “You’re affecting everybody. Sydney and Melbourne are greatly influenced by overseas migration, international tourists and international students. All these people need some sort of accommodation. For the last 15 months, we haven’t had any of them, so in particular the CBDs, which are favoured by tourists have been vacant. But the other capital cities, we haven’t had that issue.”

“What they should have done was target it: for example, anything with a 2000-2200 postcode would have had some sort of restrictions if they thought there were too many investors in that particular market.”

“Banks do that. If you go for a loan, they have a look at the suburb postcode that you’re buying in, and if it’s a decent suburb in a metropolitan area, you’re more likely to get a lower interest rate than if you’re in a small country town. So it can be done, but they chose not to apply that methodology. It was just one rule fits all.”

There is, according to Koulizos, a simple solution: to revert to the rules as they were prior to the change in 2017.

“The best thing that they can do, and the fairest thing that they can do, is to have a level playing field,” he said. “Whether an investor or owner-occupier, it’s the same deposit requirements and the same interest rate. Just like it had been for the previous 30 years.”

“It was working fine: yes, you had property booms and slowdowns, but that’s just part of a market economy. If the government feels like they have corrected what they need to correct – I think it’s been over-corrected – it’s time to go back to the situation we had for the previous 30 years.”

 

Mike Wood, Australian Broker, 10 May 2021
https://www.brokernews.com.au/news/breaking-news/pipa-ceo-speaks-out-about-investors-being-kept-out-of-rental-market-276767.aspx

 

Rental property undersupply four years in the making

Rental property undersupply four years in the making

The critical undersupply of rental properties in many locations around the nation is partly the result of lending restrictions that came into force four years ago, according to the Property Investment Professionals of Australia (PIPA).

A number of smaller capital cities are currently struggling with significant undersupplies of available rental properties, with vacancy rates often at record lows – but the pandemic is not totally to blame.

PIPA Chairman Peter Koulizos said the restrictions on investment lending that began in March 2017 saw a drastic reduction in investor activity, which slashed the usual supply of rental stock being added to the market.

In fact, property investor activity reached a 20-year low in May last year, according to the Australian Bureau of Statistics.

“Investor activity dropped about 50 per cent from March 2017 to May 2020 because of the lending restrictions that were applied carte blanche to investors around the nation four years ago,” he said.

“Back then, the restrictions came into effect because of the strong property price growth in Sydney, but investors everywhere were also blocked from securing finance even in markets with benign market conditions at the time, such as Perth, Adelaide and Brisbane.”

The vacancy rate industry standard for a balanced rental market is three per cent with any percentage below that figure considered to reflect a market with more demand than supply, according to PIPA.

Mr Koulizos said a number of capital cities and regional locations have vacancy rates of less than one per cent at present.

“Vacancy rates in inner-city Sydney and Melbourne have spiked over the past year due to the loss of international students and overseas migrants, but even many suburbs in these cities are also experiencing an undersupply of rental properties,” he said.

According to SQM Research, the national asking rent for houses has increased 15.9 per cent over the past year and the asking rent for units has risen by 7.6 per cent over the same period.

SQM Research data also shows:

  • In Brisbane, the vacancy rate has fallen from 3.5 per cent in March 2017 to 1.5 per cent in March 2021. The asking rent for houses has increased 6.8 per cent over the past year.
  • In Adelaide, the vacancy rate has fallen from 1.7 per cent in March 2017 to 0.8 per cent in March 2021. The asking rent for houses has increased 7.2 per cent over the past year.
  • In Perth, the vacancy rate has fallen from 5.0 per cent in March 2017 to 0.9 per cent in March 2021. The asking rent for houses has increased 16.2 per cent over the past year.

Mr Koulizos said the pandemic had added more the pressure to the already dwindling rental supply in regional areas in particular due to the increased migration of people into lifestyle areas.

“Demand for rental properties in many regional locations – such as the Sunshine Coast in Queensland, the Central Coast of New South Wales, and the South West of Western Australia – is far outweighing supply with rental prices skyrocketing over the past year,” he said.

“This critical situation is forcing some renters to move further afield because they can no longer afford to live in a region that they have sometimes called home for decades.”

Mr Koulizos said it was imperative that policy-makers don’t make the same mistake again with investor activity still well below what is needed to improve the supply of rental properties around the nation.

“Unfortunately, the critical undersupply of rental properties is not a situation that will change overnight – just like it wasn’t a situation that happened over a short period of time either,” he said.

“It is the industry’s belief that market cycles need to be allowed to run their course without any type of outside intervention because they will always move through their peaks and troughs of their own accord.

“Instigating policies to solve a supposed short-term problem can have long-term ramifications, which is the drastic situation that tens of thousands of tenants are now experiencing.”

ENDS

For more information, or to organise an interview with Peter Koulizos, please contact:

Bricks & Mortar Media | media@bricksandmortarmedia.com.au | 0405 801 979

About PIPA

Property Investment Professionals of Australia (PIPA) is a not-for-profit association established by industry practitioners with the objective of representing and raising the professional standards of all operators involved within property investment.

For more information visit www.pipa.asn.au