Investment property boom continues, while sellers haul in record profits

Loans to real estate investors have grown significantly faster than owner-occupier loans in all states except Victoria, which continues to underperform as a market.

Western Australia continues to dominate as Australia’s hotspot for buying activity, leading the nation in annual loan growth for owner-occupiers and investors, according to data released Friday (20 December) by Money.com.au.

Western Australia leads the nation in loan growth, ranking first in both owner-occupier and investor loans, with investor loan growth more than double the national average.

Investor loans in WA are significantly ahead of other states, with a staggering 43 per cent annual growth, far surpassing the next best state, Queensland, at 24 per cent.

In the owner occupier category, Western Australia ranks first in all areas except loans for existing properties, where it is fifth out of six. The stateʼs property market growth is primarily driven by significant increases in loans for construction, new properties, and land, highlighting the strong focus on new builds.

While Victoria’s investor loan market is weak, it leads the nation when it comes to owner-occupier loan growth. Deterred by a relatively high taxing environment, new property loans for investors have dropped by 20 per cent as landlords shun the state for other locations.

Investment action in New South Wales is behind only WA and Queensland. The loan market in NSW is stronger in investor loans, outperforming the Australian average, while owner occupier loan growth lags behind.

Record profits for property sellers

Those who are active in the property market are reaping the rewards.

New data from CoreLogic that analysed 95,000 resales over the third quarter of 2024 revealed that 95.0 per cent of property sales were profitable for the seller.

The profits were lucrative. The median nominal gain from resale reached a fresh record high of $295,000.

The gulf between Victoria and other states’ property markets was again evident.

Brisbane was the most profitable region for the second consecutive quarter, with 99.4 per cent of resales making a nominal gain. Adelaide followed closely at 99.0 per cent, while Sydney had the highest median nominal gain from resale at $370,000.

Melbourne was the only capital city to see a fall in the rate of profit-making sales over the quarter, down about 10 basis points to 90.1 per cent.

Owner-occupiers are finding the lending environment tougher than investors with ample equity and access to credit.

High interest rates make it harder for borrowers to qualify for larger loans or even loans of any size. For every increase of 0.50 percentage points in interest rates, the average person’s borrowing capacity falls by about 5 per cent, according to PropTrack senior economist Paul Ryan.

Since 2022, the Reserve Bank of Australia (RBA) has increased official interest rates by 4.25 percentage points, thereby reducing the average person’s borrowing capacity by about 40 per cent.

“If and when the RBA starts cutting rates, borrowing capacities will rise. In the meantime, the banking regulator, APRA, could achieve the same outcome by reducing a thing called the mortgage serviceability buffer,” Mr Ryan said.

Currently, to protect borrowers and the banking system, lenders need to add a buffer of at least 3 percentage points when assessing someone’s ability to repay a home loan – so if, hypothetically, you applied for a loan with an interest rate of 6.20 per cent, lenders would assess whether you’d be able to make your mortgage repayments if the rate rose to at least 9.20 per cent.

There was some good news for those planning to buy in early 2025, with the latest data suggesting conditions have turned in favour of buyers.

During this year’s spring selling season, sales volumes across the country were 4 per cent lower than the spring average in 2019-23, according to CoreLogic.

At the same time, the median amount of time required to sell a home rose from 28 to 32 days between the August and November 2024 quarters.

Helen Avis, Director of Finance, Specialist Mortgage, said for those with a deposit and credit availability, the coming year could be a positive one.

“It all points to a market in which, increasingly, vendors are having to compete with other vendors to sell their home, rather than buyers having to compete with other buyers to purchase a property.

“That suggests there will be pressure on vendors to reduce their asking prices as we head into 2025, which will give buyers more negotiating power.”