The recent Australian Bureau of Statistics (ABS) figures revealed that overall value of home finance commitments declined by 5.1% between July 2017 and July 2018. Further, the value of commitments has reduced by 7%, marking a loss of nearly $2.35 billion, since the peak in the value of housing finance in August the past year.
Delving into the data, CoreLogic Head of Research Tim Lawless expounded on the credit slowdown happening in the investment sector leading to the conclusion that activity will continue to track lower.
Lawless said that the drop has been most evident for investment loans, where the value of lending is down 15.7% over the year ending July this year and is 31% lower since hitting a record high in April three years ago.
In terms of mortgage demand, investors now only account for 41% of the market. This is significantly lower from the peak of nearly 55% recorded in May 2015. Lawless’ also revealed that, over the last 10 years, investors have covered nearly 45% of mortgage demand on an average, marking a high benchmark for investment activity.
In other words: the proportion of investment has dropped below the decade average.
Looking into the shifts by location, it was found that investment lending trailed downwards across every state and territory over the past year, except Tasmania where the value of investment lending was up 16.3% between July 2017 and July 2018.
Also resisting the trend were New South Wales (NSW) and Victoria (Vic), both states that continue to show the highest share of investment lending based on value. In fact, investors still make up almost 49% of lending in NSW and almost 41% in Vic.
Lawless, though, has his own apprehensions regarding the result. “Considering the short to medium term prospects for capital gains in these states is relatively low and rental yields remain close to the record lows, the concentration of investment activity in these states doesn’t make much sense,” he noted.
It is likely that investment activity will continue to drop, especially in NSW and Vic, once mortgage rate premiums for investors, tighter lending criteria, low rental yields and soft prospects for capital gains are factored in.
“Additionally, with a federal election around the corner, potential changes to negative gearing and capital gains tax concessions could be weighing on investor sentiment,” Lawless concluded.
