Property investors snub Victoria in favour of booming states

Rising rents and the prospect of strong capital growth is enticing more investors back into the housing market, with investment loans up almost a third over the past year.

But investors are being selective in where they park their cash, with buyers favouring outperforming markets such as Western Australia, Queensland and New South Wales over laggers like Victoria, where property prices are going backwards.

Lending data released by the Australian Bureau of Statistics on Friday showed the total value of home lending to both owner occupiers and investors rose a stronger-than-expected 3.1% to $27.6 billion in March, sitting 18% higher compared to a year earlier.

Owner occupier loans rose 2.8% to $17.5 billion during the month, up 11.4% year on year.

That compares to a 3.8% monthly surge in investment loans to $10.2 billion, up 31.1% compared to March 2023 and approaching record levels seen during the 2022 peak.

ABS head of finance statistics Mish Tan said both the size and number of investment loans has grown strongly over the past year.

“This aligns with historically low vacancy rates over the same period, and CPI rental prices rising 7.8% annually to March quarter 2024.”

Inflation data released last week showed rents remain one of the biggest contributors to the increased cost of living, with the Consumer Price Index (CPI) rising a stronger-than-expected 1% during the March quarter.

Investors have been turning their backs on Victoria in favour of smaller states with strong price growth. Picture: Getty

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But PropTrack director of economic research Cameron Kusher said the story is very much state specific, with Queensland (+45.3% year-on-year) and Western Australia (+63.8% year-on-year) leading the investor resurgence.

“These markets are extremely attractive to investors because of relatively high rental yields and relatively lower prices compared to Victoria and NSW,” Mr Kusher said.

He noted investor lending substantially fell during 2022 as the Reserve Bank increased interest rates rapidly.

“It is likely that the more stable interest rate environment and strong property price increases over the past year, along with higher interest rates improving tax deductibility from investments, low rental stock volumes and strong rental price increases is encouraging the return of investors.”

According to PropTrack, the national vacancy rate reached a near-record low of 1.11% in March with the number of vacant homes more than halving since the pandemic.

While tight rental conditions are encouraging investors back into the market, Mr Kusher said investors were still selling out.

“We are still seeing a lot of investors exiting the market and it isn’t clear whether these new investors are putting their properties into short-term or long-term rentals,” He said.

“What is needed to immediately address the rental shortage is more rental properties and more investors is how that occurs, it will just take some time to really show up in supply.”

Investors turn their back on Victoria for smaller states

During March, investors borrowed more for housing in Queensland than Victoria for the first time since 2008, as weaker prices and ongoing concerns around land tax and tenancy laws deterred buyers in the south.

“Over the past year the value of lending to investors in Victoria was up 6.3% while in Queensland it was 45.3%,” Mr Kusher said.

“Higher taxes on property in Victoria is making it less attractive to invest in and people are voting with their feet and instead investing in places like Queensland and WA, or in other asset classes.”

The latest PropTrack Home Price Index found Melbourne prices declined by 0.1% in April, meaning prices are just 1.1% higher than a year ago and about 3.4% below the previous high.

In regional Victoria, property prices remain 0.9% lower than a year ago after falling 0.1% in April.

In contrast, Brisbane prices have surged 12.8% over the past year, with dwelling values surpassing Melbourne for the first time in 14 years.

How home prices changed around the country in April

Investment lending also reached a record high in Western Australia, where property prices have skyrocketed by more than 20% over the past year in Perth, and 10% in regional parts of the state. South Australia is also closing in on record levels of investor lending.

“The capital cities of these states have seen the strongest increases in property prices but they are still cheaper than properties in Sydney and Melbourne,” Mr Kusher said.

“At the same time there is little new housing construction and rental listings are extremely low which are ideal conditions for investors.

“In some ways, I feel the best time to invest in these markets was a few years ago but clearly investors still see further upside in these markets.”

Perth has been the strongest performing capital city over the past year, enticing investors to look west. Picture: Getty

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Buyer’s agent Kate Hill from Adviseable cautioned those looking to jump on the booming Perth market without doing their due diligence.

“Perth has just been going completely bonkers for a couple of years. By the time you [buy] and it’s been in the media, the bulk of capital growth has already happened,” she said.

Instead, she said the ‘smartest’ investors were taking advantage of the weakened conditions in the south, given its solid prospects for cash flow and capital growth over the years ahead.

“Not only are there fewer buyers on the ground, property prices have been subdued over the past year, and the vacancy rate in Melbourne is just 1%,” Ms Hill said.

“In fact, the exodus of investors from the state is likely to result in a prolonged rental catastrophe that will push rents higher, which is a terrible situation for renters.”

Ms Hill was one of several property experts included in the realestate.com.au Hot 100 for 2024, nominating a range of suburbs tipped to outperform in the year ahead.