WHERE ARE ALL THE INVESTORS?
As the days grow shorter and the nights grow longer we start to experience cooler Autumn weather. And what else has cooled down in the market? Investor activity. It is because there is less support and incentive for investors? What is the catalyst for this lack of activity? At the start of the year we discussed all the key dates affecting the property market this year, and a lot of readers have asked us to reiterate these dates. Let’s see what is coming to a close over the next couple of months:
28th March 2021 Tenancy notices to vacate moratorium ended as well as the 2nd extension of the JobKeeper scheme.
31st March 2021 Extension to HomeBuilder grant of $15,000 finished.
30th June 2021 – First Home Owner Grant ends along with the Regional grant of $20,000 for new homes in regional and $10,000 for new homes in metro. Stamp duty exemption up to $600,000 and concession up to $750,000 will also finish.
1st July 2021 – Stamp duty waiver ends. Dutiable value up to $1mil, reductions of 50%for new residential, and 25% for existing residential and vacant land purchases.We discussed how these dates could mark change in the market, and that the economy will have to rely on itself. With Australian household debt one of the highest in the world, some may see this as cause for concern. There will either be a cautionary approach to spending again or a boost in consumer spending due to savings through the Covid pandemic. But considering clearance rates and house sales have remained steady (84-87% auction clearance and 1200-1300 private sales across Melbourne per week), the market seems to have stabilised for the 2nd quarter of 2021.
So that shouldn’t stop investors from buying a property right? Investors can still take advantage of the stamp duty waiver which ends on the 1st of July. But perhaps First Home Buyers were given more of a leg up from the government this time and had more strength in competing against investors with tighter lending restrictions. So let us look at some reasons why there has been little investor activity and what is driving this change.
Despite strong growth in the regional sector, not as many investors have put their money into these types of properties. Investors like to remain diversified, and have focussed their strategy elsewhere. This is why the stock market has performed so well, reaching pre- pandemic all-time highs since the crash in March 2020. Investing money in something that doesn’t depreciate and doesn’t require maintenance is an easy low risk option. If an investor does decide to invest in property they have to weigh up whether the market is going to provide a significant return on investment or not.
With the effects of Covid on the property market, purchasing an investment has never been so expensive, and negative gearing becoming the only option for investors. With the cost in Capital Gains Tax it can take investors quite some time to see a return on their investment, but it is better to be treated as a long term investment strategy as opposed to a get rich quick scheme. If a prospective buyer already owns a property, there is a high chance they already have a mortgage. If their combined debt exceeds their loan to value ratio that
allows them to buy another property, then they may decide to reduce their current debt instead.
This shift in focus has also been seen in the market where debt reduction has allowed more financial freedom to buy luxury items such as cars and boats. This has shown the true effect of Covid on peoples lifestyles, they are choosing where they want to live and how they want to live as opposed to focussing on their long terms goals for wealth creation. However individuals and companies are still holding onto their cash as well. Despite positive news in recent weeks consumers are still cautious, and those cash reserves will play a vital role in bolstering consumer spending for the rest of the year. With interstate borders opening and talks of further travel restrictions lifting, families will look to plan their next holiday in the hope to work around their change in work schedule, whether being called back to the office or working from home. All this is hinged on the vaccine rollout, its public adoption, and its rate of success which will build further confidence for work and travel for the rest of the year.
If you are considering investing or buying a property this year, please don’t hesitate to contact the team at Integrity Real Estate. Wishing you all the best for Autumn.