Investors Re-entering The Property Market In 2022

August 5th, 2022 - by Brad Gillespie

For a long time, property investment has been a hugely popular way for Australians to grow wealth and create an income stream.

According to the ATO, more than two million Australians - around 20% of households - own at least one investment property.

Did investors ever really leave the market?

When the pandemic hit, news headlines reported an exodus of investors from inner-city markets, amid rising vacancy rates and falling rents. But that’s not necessarily true.

As we all know, Sydney’s property market experienced enormous growth in sales prices over 2020 and 2021. All the talk was of owner-occupiers competing fiercely with each other for properties, driving up prices to record highs across the city.

But, as it turns out, investors were reasonably active too, according to data from the Australian Bureau of Statistics.

In fact, in October 2021, investor borrowing hit its highest level ever, and it hasn’t tailed off quite as dramatically over 2022 as owner-occupier borrowing has. That means investors now make up an increasingly large part of the market, accounting for more than a third of all new home loans across Australia.

Why we’re seeing investors right now

Stamp duty and other upfront costs tend to make it expensive to keep buying and selling property, so as an asset it tends to be a long-term investment. That means, a lot of investors prefer to take their time and buy in a stable market when they have a greater choice rather than a rapidly rising one like we experienced in 2021.

We’re also starting to see rents and yields increase - a result of the Sydney-wide vacancy rate falling back down to 1.5% after hitting 4.0% in May 2020.

What the average property investor looks like

In 2016, a CoreLogic report revealed that the average investor owned exactly 1.28 investment properties, earned a taxable income of $60,000 to $80,000 and was most likely to be aged 50 to 64 years old. This dispels the myth that the average Aussie property investor is super wealthy.

The private rental market is a vital part of our housing market and economy. According to the ABS, around 25% of residential dwellings in Australia are owned by private landlords, who rent them out.

That said, we’ve noticed some emerging trends relating to investors in our area.

1. More women are investing in property.

Historically underrepresented as property investors, we’ve observed a larger number of women looking to buy property in the inner city and inner west over the past few years. Our experience is that women are often better researchers than men (sorry, men) and are more concerned with long-term capital growth and making a solid investment in a good location. Financial security, growing wealth, and creating an income stream for the future are all important. This means they’re often searching for quality apartments in locations close to transport and amenities, and the inner city and inner west fit that criteria.

2. Downsizers are also becoming investors.

We’re increasingly seeing downsizers invest early - well before they intend to move and often while they’re still relatively young - just to secure the perfect property for their next stage in life. Rising prices and a lack of stock mean they don’t want to miss out. They’ll use the property as an investment, renting it out until they decide to downsize and move into it themselves - something that’s often many years away. These investors tend to purchase larger single-level apartments that could function as a future city crash pad. They’re also after terraces and small, single-level cottages and houses in lifestyle locations such as Erskineville, Newtown and Alexandria.

3. The mum and dad landlord.

We mean this quite literally. We’re seeing a trend toward parents buying apartments as an investment, and then renting them to their older kids, who work or study in the area. Driven by the high cost of renting and the fear of their children being locked out of the property market, they’d rather keep it in the family. These investors are usually interested in smaller apartments close to amenities including the University of Sydney, UTS, Newtown School of Performing Arts and Royal Prince Alfred Hospital. They also prize walkability and great transport connections.

4. Upsizing opt-outers.

We’re also seeing a new breed of investor who is choosing to stay in their current home and using their equity to buy an investment property, rather than upsizing to a larger property. Often a professional - or young professional couple - they’ve decided to go for long-term financial goals, ahead of short-term lifestyle goals, forgoing a larger property to become a landlord. These investors tend to focus on small but solid purchases, often choosing one-bedroom apartments in popular, rentable areas including Chippendale, Camperdown, Green Square, Redfern, Surry Hills or Alexandria.

5. Superannuation investors are still active.

While most popular a few years ago, when the laws were even more favourable, we still see a lot of people investing in property through their self-managed super funds (SMSFs). These investors can never live in the property themselves and tend to make very well-researched investments, paying careful attention to data such as yields, vacancy rates and capital growth potential. Green Square and Redfern are both areas that have been hugely popular with this investor group, and both have seen great capital gains thanks to urban renewal projects, great transport, lifestyle, proximity to the CBD and amenities. And there’s much more to come in these areas, with current investors still enquiring.

We expect each of these investor groups to remain a force in the market over the remainder of 2022 and on into 2023.

Want more?

If you’d like to find out more about buying or selling in Sydney’s inner city and inner west, get in touch with my team today.