One surprise group of homebuyers have embraced a left-of-field real estate move that is reshaping the market across the country.
Real estate guru John McGrath reveals the trends that will shape markets in the year ahead
The Commonwealth Bank says 46 per cent of its new property investor customers last year were Millennials, who were born between 1981 and 1996. The next biggest generation of investors were Gen Xers, born between 1965 to 1980, who accounted for 37 per cent of investment purchases.
Rentvesting is one of many great examples I’ve seen of younger generations adapting to the inevitable affordability challenges of a consistently rising property market like Australia’s.
It’s impressive to see people in their 30s and early 40s making up such a big proportion of CommBank’s new investor clientele last year.
Investors are flooding back to the market, headed up by Millennials. Picture: Julian Andrews
Real estate is the best way to generate wealth in Australia. It’s a safe, reliable and gradual way to build wealth over the long term without the large swings in value that we see on the share market.
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Investors are increasingly active in property today, with data from the Australian Bureau of Statistics showing a 21.5 per cent increase in investor lending compared to 9.1 per cent growth in owner-occupier finance over the past 12 months.
The CommBank data shows the average loan size among new investor customers was $500,000. These days, a loan of that size will typically buy a city apartment, or a house in a cheaper market.
The pandemic opened many people’s eyes to affordable investment opportunities in regional areas and cheaper capital cities. As a result, we’ve seen investors widening their search criteria.
REAL ESTATE INVESTORS LOOKING FURTHER AFIELD
Research by MCG Quantity Surveyors shows the average distance between landlords’ homes and their investment properties surged to 1,502km in the year to November 2023. This compares to 857km in the year to November 2022 and 294km prior to the pandemic.
Houses traditionally go up in value faster than apartments, so some investors would see this alone as a reason to buy in an unfamiliar but much more affordable market. Today’s high interest rates are also restricting their budgets, which may also force some investors to look further afield.
Investors are casting the net far and wide.
Millennials, in particular, use more digital tools to assess the property market. Tech-savvy, they rely on apps and social media to find everything from properties for sale to financing options. So, it’s no surprise that more of them are likely thinking differently than their parents about where to invest in property.
A great example of interstate investing trends right now is East Coast investors buying in Perth and regional Western Australia, where median house prices are about $720,000 and $495,000, respectively, and gross rental yields are 4.4 per cent and 6.2 per cent.
Greater investor demand has contributed to an 18.6 per cent surge in the median house price in Perth and a 10.8 per cent increase in regional Western Australia over the past 12 months, according to the latest CoreLogic figures.
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BABY BOOMERS CASH IN ON PROPERTY INVESTMENT
The generation with the most wealth available for property investment is the baby boomers, yet they made up only 9 per cent of CommBank’s new investors last year. Having said that, many baby boomers already own investment properties, with ATO data showing Australians over the age of 60 make up the largest cohort of landlords.
Many baby boomers can also buy new property investments with cash, so they don’t need a bank loan.
CommBank said the most popular postcodes for investment purchases last year were 2000 (Sydney CBD); 3029 (West Melbourne); 2765 (North West Sydney, including Marsden Park), 3064 (North Melbourne), and 2155 (North West Sydney, including Kellyville).
* John McGrath is the founder, Managing Director and Chief Executive Officer of McGrath Estate Agents
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