While fewer investors are putting their money into the housing market, some experts argue this trend may not be the government victory it’s portrayed to be.
Recent data from the Australian Bureau of Statistics highlights a significant dip in investor participation in the housing sector during the June quarter.
This drop in investor loans has reached its highest level since September 2022.
On Friday, Treasurer Jim Chalmers hailed the lending figures as positive evidence that Labor’s reforms to negative gearing and the capital gains discount are successfully redirecting the market towards first-time homebuyers, even before these policies are fully implemented.
However, experts caution that this decline in investor activity does not necessarily equate to a surge in first-time homebuyers, which the government’s property tax reforms aim to encourage.
‘Not surprising’ but not the whole picture
The number of investor loans fell 8.6 per cent in the June quarter, while first-home buyer loans fell a comparatively lower 2.9 per cent, according to ABS data released on Friday.
Independent property researcher Cameron Kusher said ABS’ latest lending data was not surprising and reflected a typical knee-jerk reaction to policy changes.
“Across both the number and the value, the biggest falls in lending over the quarter were for investors, which is not really a surprise when you consider the tax changes that have happened,” he said.
The pullback lines up with what major banks have been reporting in their own lending figures, with CBA and NAB both reporting a 15 per cent drop in mortgage applications last quarter, while Westpac saw a 20 per cent drop.
The tax changes were announced in the May budget but aren’t set to formally take effect until 1 July 2027. So, this quarter’s fall was a reaction to the announcement itself, not the policy in action.
Kusher expects a bigger fall in investor lending in the future.
“We may actually see a larger fall when we get to the next quarter, when we see the full impact of a whole quarter of these changes,” he said.
Both Kusher and Real Estate Group’s economist Luc Redman say investors have not retreated entirely, rather they have changed strategy.
They are still keen on residential property but the type of property they’re chasing has shifted. They are now eyeing properties that have strong rental growth, or yield.
“Early evidence post-budget suggests that investors are enquiring more towards units that tend to have a higher yield and a lower entry point … compared to prior, when investors would be looking at houses that have stronger prospects of capital growth,” Redman told SBS News.
Two places, Tasmania and the ACT, didn’t see drops in investor interest — which Kusher said could be a sign they’re moving toward properties with good rental returns relative to purchase price.
“I think the fall in new investment will potentially have a flow-on effect to the rental market where rental supply will tighten and landlords will have more scope to put up rents,” Kusher said, though he noted there wasn’t evidence of that happening “just yet”.
Both experts hesitate to call this a permanent retreat for investors.
“It is likely that this won’t be the case forever,” Redman said.
“Once yields return to more attractive levels, we would expect investors to return to the market at a new equilibrium,” he said.
“In the short term in particular, there will probably be a higher proportion of owner-occupier purchases in the market until we see yields rebalance and investor sentiment return … [separately] the structural undersupply of dwellings means prices will continue to increase over the long run, albeit more modestly than recent price growth.”
Kusher says at least two to three quarters of data will be needed before drawing any meaningful conclusions, meaning the next quarterly release will be a better indication of investor behaviour as it will be the first to reflect a full three months under the new environment.
A win for first-home buyers?
The policy case for the tax changes rested on the idea that pushing investors out would clear space for first-home buyers.
But the numbers haven’t quite shown that yet, Kusher says, adding that two things may be happening.
First-home buyers do not directly replace all the investors who have retreated — first-home buyers do not entirely fill the gap as they are a smaller group of buyers than investors. Secondly, first-home buyers, like investors, are also in a “wait and see” mode.
“There’s an assumption that if you don’t have an investor, you have a first-home buyer. That’s not always the case. Not everyone that’s currently renting is in a position to buy a home,” Kusher said.
Investors make up about 40 per cent of the residential market, but first-home buyers have never been that large a group, he added.
“So, if you’re discouraging investors and trying to encourage first-time buyers, you’re probably going to struggle to see an uplift in first-home buyer lending offset the weakness in investor lending — and that’s certainly what we’ve seen,” Kusher said.
He notes that some first-home buyers may be falling into a “trap” of trying to time a falling market but warns “picking the bottom of the market” is incredibly difficult.
“I think what these [tax] changes have done more than anything else is just damaged sentiment around the housing market,” he said.