These findings have been produced by the Australian Property Investor publication in the Property Sentiment Report Q4 2023.
Key Findings
Investors in it for the long term
At the end of 2022, investors expected the property market to decline due to high inflation and anticipated interest rate hikes.
When asked about their main financial property strategy for the next year, 17% planned to buy an investment property, beating those focusing on loan debt (16%), rent yields (9%), or passive income (6%).
A year later, the property market defied expectations, with strong growth in major cities. More people (21.5%) now plan to buy investment property in 2024. Retirement investment is also gaining popularity, with 19% prioritising it compared to just 5% a year ago. This shift reflects a move away from relying solely on property for capital growth or passive income. Despite concerns about rate hikes, property prices remained strong, prompting changes in investment strategies.
Rates steadying and but nervousness not easing
Sellers are more relaxed about interest rates compared to buyers, but there's still a cautious feeling about what the Reserve Bank of Australia (RBA) might do next. If interest rates were to rise significantly, many property owners and investors, especially first-time home buyers, would struggle to pay their loans. This could lead to more properties being put up for sale, causing an oversupply in the market and a drop in housing prices.
Despite this, Australian property prices continue to rise in most markets, except for Melbourne, Hobart, and Canberra. This suggests that sellers aren't feeling pressured to sell their properties yet, as seen among our survey respondents. In just one quarter, the number of respondents influenced by interest rates to sell decreased from 22% to 11%.
Overall, the proportion of respondents, including buyers, sellers, and homeowners, expressing concerns about the direction and impact of interest rates has been slowly increasing for three consecutive quarterly reports.
Mortgage stress eases despite high-interest rates
In November, the RBA increased its cash rate to 4.35%, the highest in 12 years, marking its 13th hike since May 2022. Renters also faced challenges, with house rents rising by 9.1% and unit rents by 13.1% between December 2022 and 2023. In Sydney, the median weekly rent soared above $750.
Despite these increases, there's been a surprising change. While one might expect higher expenses to cause more mortgage and rental stress (where over 30% of income goes toward repayments), that's not the case anymore. People's perceptions play a significant role, and many believe that interest rates have peaked.
This shift in perception likely explains why the proportion of people experiencing mortgage/rental stress has decreased from 36% to around 26% in the six months since our 2023 Q2 sentiment survey.
Planning for the end of the fixed-rate loan
In Q3 2020, the average three-year fixed-rate loan was 2.2%. Today, those who switched to a similar variable rate loan are paying an average of 6.85% (or 7.48% with the major banks). It's no surprise that refinancing has reached record levels and remains the preferred strategy for about 60% of respondents dealing with the switch from fixed to variable rates, whether with their current lender (35%) or a different mortgage provider (25%).
Survey respondent profile
Investor sentiment
The national property market shows a divide between capital cities and regional areas. Despite over 30% of Australians living outside major cities, regional market performance has slowed since the rush for lifestyle changes during Covid restrictions.
In 2023, capital cities saw more than double the annual price growth compared to regional areas. This exceeded expectations from Q4 2022 when only 38% anticipated regional price increases. However, 58% now foresee price growth in regional markets for 2024.
Capital cities remain the focus for most property investors, with four out of five expecting price rises over the next year. Overall sentiment is reserved but optimistic, a turnaround from six months ago when optimism dipped below 50%.
Potential investors consider factors beyond interest rates, including rental market dynamics and government housing supply in light of record population growth.
Investor concerns
Since API Magazine started its sentiment survey series, four key concerns consistently troubled potential property investors. Over the last couple of years, interest rates, finance, rental returns, and affordability have been the main worries. Initially, back in mid-2020, interest rates were low and not a big worry, but they've since become the top concern in the real estate market. In 2023, the trend persists.
November 2023's interest rate hike likely stirred concern among respondents, but lately, other issues have also caught attention. Land tax and stamp duty have become more prominent in the past two quarterly reports. Victorians, in particular, feel the pinch of recent tax changes, with reports indicating they're paying a billion dollars more in taxes compared to the pre-COVID era.
Many respondents in our latest survey shared their frustration with state stamp duty and tax policies. One common sentiment is that increased taxes on land, properties, and landlords hinder efforts to increase housing supply to meet rising demand. These taxes discourage investment in new properties, exacerbating the housing shortage. Landlords are criticised for raising rents, despite facing higher costs from various government fees like council rates, insurance levies, land tax, and others.
Investor finance
Amid historically high-interest rates, persistent inflation well above economic norms, and home prices reaching or nearing record levels nationwide, one might expect a subdued mood among property buyers. However, property market sentiment has remained resilient over the past quarter and has even strengthened throughout the year.
With 60% of respondents acknowledging that high inflation is affecting market dynamics to some degree, the impact of rising living costs is evident, prompting many to prioritise everyday expenses over saving for a home deposit. Roughly one-third of respondents expressed concerns about inflation, steep rent increases, living expenses, and the unattainability of property in their comments.
Similarly, 60% of respondents believed that relaxing banks' lending criteria could ease some barriers to home ownership. However, the prevailing sentiment suggests that despite these challenges, there is sufficient liquidity in the market to maintain positive sentiment and upward pressure on prices, despite economic uncertainties.
Investor intentions
Survey respondents looking back on the final quarter of 2023 are signalling strong participation in the 2024 property market, driven by optimism and key indicators.
Buyer intent has reached a two-year high, buoyed by beliefs that interest rates have peaked and ongoing housing supply shortages. Investors lead the charge, comprising 63% of respondents.
In 2023, units experienced notable capital growth and higher rental yields compared to houses. However, the preference for detached houses has surged to 45%, doubling from the previous year, while interest in units has declined.
Overall, the market outlook remains positive, with buyers showing confidence despite fluctuations in housing preferences and rental dynamics.
Disclaimer: These findings were produced and published by Australian Property Investor. Cameron Bird Property Group does not take ownership over these findings.