LJ Gilland Real Estate: Investors are riding a wave of looser bank lending and flooding back into the property market.

Investors are riding a wave of looser bank lending and flooding back into the property market.

According to the Australian Bureau of Statistics (ABS), lending to property investors increased 5.7 per cent in August, to $4.88 billion.

The large jump was much greater than the 3 per cent predicted by market economists, and came after a 4.7 per cent increase in July.

Owner-occupiers didn’t miss out on the cash splash, either, with lending to this segment of the market up 1.9 per cent in August, to $13.55 billion for the month.

But the significant spike in lending to investors was what piqued most commentators’ interest.

Read more: Don’t thank the Coalition, this is the real secret to the property recovery

CoreLogic’s head of research Tim Lawless said the data showed the market recovery was in full swing.

He said the 12 per cent increase in home loan lending over the past three months showed buyers had taken advantage of the RBA rate cuts and APRA’s easing of serviceability requirements.

“The owner-occupier numbers have actually mellowed a little bit … from the prior month,” Mr Lawless told The New Daily.

“But to see investor finance commitments jump as much as what they have over the month – that’s probably the biggest surprise.”

Mr Lawless said a combination of factors explained the spike in investor activity.

“Part of it is because [the amount of investor lending] is coming from a low base, and investors are still a relatively small proportion of the market,” he said.

“And I think another factor simply comes back to the fact that lenders are becoming more competitive for [business from] investors.”

That the house price recovery has mainly been limited to Sydney and Melbourne also helps explain why the growth in investor lending outstripped the growth in owner-occupier lending in August.

Prices in Sydney and Melbourne have rebounded significantly over the past three months.

Given investors tend to focus on these markets, EY chief economist Jo Masters said it was therefore unsurprising that investors were flooding back into the market.

“We had a 1.7 per cent house price rise in both Melbourne and Sydney in September, which, in annualised terms, is pretty solid,” Ms Masters told The New Daily.

“And I guess if you’re thinking about it from an investor point of view, that price rise is measured against where else you could invest it – and in a low-interest rate world, when you see price gains of that level, it might be quite attractive to the investor segment.”

But while lending to investors is growing at pace, they’re not outbidding first-home buyers at auctions as much as they did during the last property boom. Not yet at least.

In New South Wales, where they’re most active, investors currently comprise 32 per cent of the market.

In 2015, as prices ramped up, that figure rose to 55 per cent.

That means first-home buyers will continue to find opportunities for the time being, with lending to first-home buyers currently at its highest level since November 2009.

But steadily improving investor margins mean it’s very likely more will dip into the property market in the coming months.

The gap between the average three-year fixed mortgage rate and the average rental yield in Australia’s capitals has steadily fallen over the years to just 0.01 per cent – well below its decade-average of 1.4 per cent.

Mr Lawless said this means property is becoming increasingly attractive to prospective investors.

“Investors are going to be attracted to property once again because values are starting to rise, yields are higher than they used to be, and the spread between mortgage rates and rental yields – particularly for fixed-rate loans – is virtually nothing,” Mr Lawless said.

Coupled with the likelihood of more RBA rate cuts, the return of the investor means “there’s definitely much more upside to go in house prices over the next few months,” according to AMP Capital senior economist Diana Mousina.

And that spells bad news for first-home buyers struggling to save a deposit.

“If the economy continues to run at this soft pace, and the unemployment goes up as we think, then that would put a hand brake on the housing market,” she told The New Daily.

“But while we’re still seeing this momentum in investor demand, then this probably can continue for another few months.”Australia’s economic growth remains positive and the government insists our national finances are on track.

But for many Australians it feels like a full-blown recession.

AMP chief economist Shane Oliver maintains Australia is a long way from a recession – something Treasurer Josh Frydenberg notes our “strong, growing economy” has avoided for 28 years.

But even with GDP growth still positive (though slowly, at 1.4 per cent for the year to September), wages growth remains subdued, employment continues to slide and the International Monetary Fund has just predicted a sharp downturn in our economic growth.

So much so the IMF graded Australia behind Greece and Spain for economic growth.

Jo Masters, EY’s Oceania chief economist, told The New Daily that the lived experiences of ordinary workers often differs from the technical definitions used by economists.

In this case, the definition of a recession is two consecutive quarters of negative GDP growth – and Australia hasn’t even had one such quarter in recent memory.

But that definition, while useful at a national level, doesn’t say much about the ordinary Australian’s living standards.

While GDP growth remains positive at a national level, breaking it down to look at GDP per capita – which divides a country’s economic output down per person – reveals a different story.

And that GDP-per-capita figure actually fell 0.2 per cent in the year to June.

“When GDP per capita is flat or down slightly year on year, it means you’re only growing through population growth,” Ms Masters said.

“So yes, the economy is getting bigger, but only because you’re inserting more people into it, not because people are spending more, or businesses are investing more, or because productivity is up.

“GDP per capita is basically a measure of standard of living, so we’re getting bigger, but we’re not improving our standard of living.”

Additional challenges for some

Other more personal factors can also play a significant role in how well-off a person is.

People living in Western Australia, for example, face more difficult economic conditions than their peers in Victoria, Ms Masters said.

The industry someone works in also plays a large role.

“The economy may not be in recession, but if you’re working in an industry that’s contracting, you may feel like your world is going backwards,” Ms Masters said.

“In Australia, the economy is still growing by 1.4 per cent, and we haven’t had even one negative quarterly growth rate yet, but if you’re working in an industry like retail, for example – which is facing significant headwinds and surveyed business conditions are below average – then you might feel like the economy is a lot weaker than overall GDP suggests.”

A closer look at retail

University of Tasmania retail researcher Louise Grimmer is wary of describing the industry’s current struggles as a recession because “it is such an emotional term, particularly for consumers”.

Even so, Dr Grimmer said retailers face an “extremely challenging period” driven by a range of economic factors, such as poor employment data and uncertainty over the possible effects of global events like Brexit.

“Certainly, recent reporting from the latest NAB Business Survey showed total retail sales levels at the lowest rates since the 1990-91 recession, and it appears that in the near term that things will not improve for the retail sector,” she said.

“It’s a pretty fraught time for people working in the sector – from the CEO to the shop floor, I think retailers are concerned about what is happening, particularly the restructuring that we’ve seen with closures, consolidations and the like.”

Michael Youren, a senior industry analyst with IBISWorld, said department stores face a particularly challenging time in the face of tougher competition, rising living costs and shrinking GDP per capita.

“The overall economic outlook is probably not particularly good, even just this week we’ve seen IMF reduce Australia’s growth forecast to 1.7 per cent,” he said.

“Then when you look specifically at the retail sector, these sort of factors don’t particularly change or help the retail sector, so we’re unlikely to see significant wage growth in the short term and this is causing issues as living costs continue to rise.”

You will find this property of interest located in Brisbane at 4 Celica Street, RUNCORN, PRESENT ALL OFFERS mid $600K range NOW!!. Be quick or miss out as there’s much interest in this property. There will be an open home this Saturday at 11 am to 11.30 am. This property represents great value & won't last long.

***INSPECTIONS ARE ALSO AVAILABLE BY APPOINTMENT BY CONTACTING AGENT ****

EXCEPTIONAL BUYING FOR AN ASTUTE PROPERTY INVESTOR OR OWNER OCCUPIER, LARGE FAMILY LIVING LIFESTYLE!

Located at possibly the highest point of Runcorn, hence classified as Runcorn Heights.

Away from traffic, quiet location and convenient to all amenities.

This large family home gives you that ‘warm loving feeling’, situated in a handy location within a walking distance to the local school, shops, café, trains stations, and minutes drive to Sunnybank/ Sunnybank Hills Shopping Centres, highways and public transport. Spread over an 846sqm of land this property offers easy living with a spacious layout including FOUR good sized bedrooms AND STUDY, outdoor entertaining area and backyard.

Boasting:

Ducted Airconditioning.

4 bedrooms with mirrored built-in robes.

Study.

Formal lounge /Rumpus.

Kitchen Dining Entertainment area.

Separate toilet and laundry.

Double Garage.

Gas five-burner cooktop & Dishwasher.

Breakfast hub.

Timber flooring throughout bedrooms and living area.

Security screens.