The Australian property investment market bounces back
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The Australian property investment market bounces back

More property investment means more supply for tenants amid a rental housing crisis

By Bronwyn Allen
Fri, Feb 9, 2024 10:28amGrey Clock 2 min

Investors are returning to the property market after an exodus in early 2023 and a significant decline in investor buying between 2015 and 2020. The lack of investor activity has been seen as a  contributor to today’s massive undersupply of rental homes. That five-year decline began after the banks applied higher interest rates to investor loans in a bid to slow investor loan growth, as requested by the prudential regulator.

However, the latest lending data from the Australian Bureau of Statistics shows a 20.4 percent increase in the value of investor loans over the past year, indicating more investors are buying property. This is welcome news for renters across the country, who are finding it exceedingly difficult to secure affordable accommodation amid rapidly rising rents and record-low vacancy rates of about 1 percent.

Last year’s surprisingly strong price growth across most of Australia’s markets has likely inspired more investors to look at property again. Capital growth is typically the primary goal of new investors, with yield seen as simply a way to help pay off the mortgage over time. However, yield becomes more important when interest rates are rising, and a 40 percent increase in rents since the pandemic means many city and regional markets are now delivering healthy yields above 5 percent.

Investors are also increasingly looking beyond their own neighbourhoods for more attractive property investment opportunities, typically in cheaper markets. Research by MCG Quantity Surveyors shows the average distance between landlords’ homes and their investments was 1,502km in the year to November 2023. Prior to the pandemic, that average distance was just 294km.

Western Australia provides an example of this trend, and is one of the hottest markets among out-of-area investors today. This follows a 15.6 percent lift in Perth’s median house price to $691,100 in 2023 – the highest capital gain of any capital city – along with an 8.2 percent increase in regional house values to a median $477,690 – the third highest gain among Australia’s regions, according to CoreLogic figures.

WA and Perth have caught the eye of Eastern States investors, said Joe White, president of the Real Estate Institute of Western Australia (REIWA). They’re drawn by the value our market offers. Despite increases over the past few years, our property prices are much more affordable than the east coast and we’ve had significant rent price growth. This means properties have the potential for very good yields.

Total returns including capital growth and rent on investment houses reached a staggering 20.8 percent in Perth last year, and 14.5 percent in regional areas, according to CoreLogic data.



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Thousands of Australian companies on the brink of going into administration as EOFY nears

Along with high inflation and weak consumer spending, there’s another key factor pushing a record number of businesses to the edge

By Bronwyn Allen
Fri, Jun 21, 2024 3 min

More than 10,000 companies are expected to have entered external administration by the end of the 2024 financial year, a level not seen for more than a decade. Data just released by the Australian Securities & Investments Commission (ASIC) shows 1,245 companies became insolvent in May, the highest monthly number this financial year. At present, a total of 9,988 businesses have gone bust in FY24 with data from June yet to be finalised.

Deloitte Access Economics Partner David Rumbens said the surge in business insolvencies this year was a “clear sign of economic distress”.

He commented: “[ASIC] predicts that by the end of the financial year, the number of companies entering external administration will likely exceed 10,000 – a level not seen since 2012-13, in the aftermath of the Global Financial Crisis (GFC).”

Mr Rumbens said the elements contributing to this year’s surge in insolvencies include high inflation and interest rates, weak consumer spending, and the commencement of more proactive tax debt collection activities by the Australian Taxation Office (ATO).

“One of the key factors contributing to this surge in insolvencies is the [ATO] pursuing debts that were previously put on hold during the COVID-19 pandemic,” he said.

Mr Rumbens cited ATO figures showing collectable debt rose 89 percent in the four years to June 2023. This has particularly impacted small businesses, which account for approximately 65 percent of the total debt owed at about $33 billion. “But more strictly enforced debt collection is coming at a time of tough economic conditions. High interest rates and cost-of-living pressures have weakened consumer spending, particularly in more discretionary components of spending.”

The construction sector has seen the highest number of insolvencies by far in FY24, mirroring the trend of FY23. Of the 9,988 insolvencies to date, 2,711 of them are in the building sector, which faces several challenges. These include a substantial lift in the cost of construction materials that is well above inflation and has made many fixed-price contracts signed within the past few years unprofitable. There is also a significant labour shortage that is delaying new home completions and new project starts, and also adding higher costs to projects.

“The construction sector has been hit particularly hard, with construction firms leading industry insolvencies in every quarter since mid-2021,” Mr Rumbens said. “They have accounted for approximately 25 percent of all insolvencies during this period. The residential construction sector is already facing a backlog of projects to complete as a result of skills and material shortages in recent years, and increased insolvencies in the sector may only exacerbate the problem of housing shortages.”

The ASIC data shows the next biggest industry affected is ‘other services’, which includes a broad range of personal care services such as hair, beauty, dietary, and death care services. The sector has seen 939 insolvencies in FY24. Retail trade is next with 687 insolvencies, followed by professional, scientific and technical services with 585 insolvencies.

“The food & accommodation sector has also experienced a wave of insolvencies. High input costs, worker shortages, and weak consumer sentiment have put pressure on businesses. Specifically, in March, cafés, restaurants, and takeaway businesses accounted for 5.5 percent of total business insolvencies, the highest proportion in the last three years.”

Mr Rumbens pointed out that while the number of insolvencies was high, it represents a lower share of the business sector at 0.33 percent than it did in FY13 when it was 0.53 percent. “This reflects the increase of registered companies in Australia, which has risen from just over two million to 3.3 million since 2012-13. Even so, the continued lift in insolvencies since 2021 highlights the difficult conditions many businesses face at present.”

 

 

MOST POPULAR
11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

35 North Street Windsor

Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

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