29/11/2021 - 15:36

Investors returning to local market

29/11/2021 - 15:36

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Recent transactions show investors are coming back to WA after a significant drop.

Investors returning to local market
Celsius Property Group's managing director Richard Pappas and director Tim Grose say investors are returning to the market.

Investors are showing a renewed interest in Western Australian property, as data shows an uptick in investor loans.

Strong rental yields, dwelling value growth and increased equity have drawn more investors to WA property, after a significant dip in investor activity during COVID-19.

Australian Bureau of Statistics data shows investor loans in the state have grown by 86 per cent in August 2021 compared with 12 months ago. Apartments are driving a lot of that growth, as an attractive proposition for interstate buyers.

Apartment values are predicted to follow the growth trajectory of detached houses, which have spiked by 18 per cent in WA in the 12 months to October.

Analysts say this expected growth, coupled with high rental yields, would draw more investors to the market.

Growth source BIS Oxford Economics principal economist Timothy Hibbert said the investor market was the fastest-growing segment nationally.

Investors returning to local market

Recent transactions show investors are coming back to WA after a significant drop.

“Across Australia we’ve seen investor demand pick up [and] WA is holding pretty strong growth,” he said.

Over the past two months, WA investor finance has increased 7 per cent, according to ABS and BIS Oxford Economics data.

Mr Hibbert said a lot of the demand was directed towards the east coast, but Perth was emerging as increasingly attractive for investors as rental yields had lifted to about 4.8 per cent.

This is on par with Brisbane and ahead of Sydney, which has a rental yield just above 3 per cent.

A return of international migrants could drive rental yields even higher as the market tightens. Green shoots While some apartment developers have reported a surge in investor activity, most unit sales are dominated by downsizers.

WA’s Finbar Group has sold 48 of the 167 apartments at its The Point development in Rivervale, prompting it to bring forward its construction timeline. Finbar managing director Darren Pateman said investors comprised about 20 per cent of the market during the past 18 months.

“Since the downturn it has been very much an owner-occupier market, but with low interest rates, vacancy rates and now with periods of sustained growth, investors are coming back,” he said.

Some apartment developers have shelved projects until they can get more off-the-plan sales, which largely come from investors. Instead, they are opting to build mid-rise apartments suited to downsizers.

For example, Mirvac shelved its 31-storey Tower 6 development to build its eight-storey Ador complex until market conditions improve.

Celsius Property Group managing director Richard Pappas said east coast investors were starting to come back, evidenced by interest in Celsius’s six-storey, 37-apartment Subiaco development.

However, the main interest still came from owner occupiers.

“Out of the 21 sales we have made so far, we’ve had two local investors and two eastern states investors,” Mr Pappas said.

“East coast investors are here; they can see the value in the market because they have been in such a strong market for such a long time.

“The Sydney market has doubled in the last 10 years and our market has trodden water up until 12 months ago, so they’ve got all this equity in their properties and they’ve started to look further afield.”

He said Celsius had shut down its sales gallery in Subiaco after four weeks because it had reached its pre-sale targets.

Local interest Perth investment group Momentum Wealth reported an increase in Perth property owners leveraging equity to invest in property.

Momentum Wealth finance team leader Caylum Merrick said investors saw rising property values as an opportunity to review their financial position.

“We are working with an increasing number of investors, both existing and first time, who are looking at leveraging this equity to fund an investment purchase or consolidate their position while interest rates are at record lows,” he said.

“We have also witnessed a similar growth in investor demand, with many investors recognising the unique opportunity at hand to capture both growth conditions and strong rental yields.”

Mr Merrick said investors’ dwelling choice depended on what stage of the investment cycle they were at, with early investors targeting the higher growth generated from established houses, townhouses, or villas.

“Apartments usually provide higher rental yields and higher depreciation, meaning better cash flow for investors,” he said.

“However, the growth is usually lower than a house or townhouse, so there is a trade-off.”

“That said, boutique apartments in areas where there is limited scope for further development can present a great option for investors where you can still get reasonable growth.”

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