The rapid rise in interest rates and sharp falls in house prices may have spooked many investors, but some seasoned landlords are now taking advantage of the lull in the market to bulk up their portfolios.
Sydney-based investor and founder of buyer’s agency InvestorKit, Arjun Paliwal, said improving rental yields and the prospect of stabilising interest rates were proving irresistible to some.
“We’ve seen heightened inquiries from experienced investors in the recent months because yields are becoming attractive, and many of them feel like they might be missing out on opportunities to pick up properties with improving rents. They also want to get in before the rest of the pack catch on,” he said.
“The smaller rate increase this month also gave them some confidence that interest rates will soon stabilise and even trend lower, which will again kick-start the market, so they want to get in before that happens.”
Samara Metri, director and founder of buyer’s agency Buyer’s Club said long-term investors had been waiting for this dip in the market and were now ready to pounce.
“There are many nervous buyers out there, but there are even more nervous vendors, which means good buying opportunity. Educated investors know this,” she said.
Sydney-based IT professional and experienced investor, Nilesh Kailas Nagawade, is among those looking to take advantage of the weak sentiment to expand his portfolio.
“I think it’s a great time to invest because there is fewer competition and the rising rents can deliver good returns,” he said.
“I’m currently looking to buy cash flow positive properties to balance my portfolio which consists mostly of capital growth properties. The higher rental yield will also help me with my borrowing capacity as the property will pay for itself.”
Domain calculated that a 4.34 per cent gross rental yields will cover the mortgage repayments on an average standard variable rate loan, taken on a 20 per cent deposit over 30 years. This excludes other holding costs.
This means houses in 11 per cent of all suburbs in NSW are earning high enough rents to cover the mortgage repayments and even putting some extra cash into the landlords’ pockets, according to Domain’s analysis. For units, this figure rises to 32 per cent of all suburbs in the state.
Some NSW towns, such as Broken Hill, Moree, and Cobar would likely produce positive cash flow as gross yields rise to 8.1 per cent, 7.5 per cent and 7 per cent gross yields respectively.
“I think what we’re seeing now is that rental yields are improving because we’ve got an extremely tight rental market where it’s pushing rents higher and a softening sales which is also helping to boost those yields,” said Nicola Powell, Domain’s chief of research and economics.
“We’re going to see yields continuing to improve because property prices are likely to suffer further. At the same time, vacancy rates are extremely tight across all of our capital cities which will push rents higher.”
The Northern Territory has the highest share of houses achieving neutral cash flow with 97.4 per cent of all suburbs getting 4.34 per cent yield, followed by Western Australia with 74.2 per cent of all house markets.
In Queensland, houses in more than half of all suburbs are earning enough to cover the mortgage repayments, 46.7 per cent in Tasmania, 43.5 per cent in SA and 8.9 per cent in Victoria.
Houses in mining communities in rural Queensland and WA are currently producing some of the highest rental returns in the country such as Moura at 9.3 per cent, Newman 9 per cent and South Hedland 8.4 per cent.
Within the capital cities, houses in northern Adelaide suburbs such as Davoren Park, Elizabeth Downs, Elizabeth South are earning more than the mortgage costs, with rental yields rising to 6.7 per cent on average.
For units, all markets in the ACT, Tasmania and NT are currently achieving break-even yields, and 95 per cent of all unit markets in Queensland and SA are also earning similar returns.
Meanwhile, more than half of unit markets in WA and 48.6 per cent in Victoria are also getting at least 4.34 per cent rental returns.
Units in regional centres such as Cairns, Townsville and the Gold Coast in Queensland are among the most lucrative for landlords.
Within the capital cities, units in New Port in Adelaide’s west have the highest rental yield of 8.2 per cent, followed by Logan Central and Woodridge in Brisbane’s west with 7.4 per cent and 7.2 per cent yields respectively.
Mr Paliwal of InvestorKit said investors who were sitting on the sidelines and waiting to see how far prices would fall would be motivated to return.
“I believe they’ll be tempted to get back because they can now see how strong the rental markets are,” he said.
“That’s why I’ve been buying up in the recent months so that I can get ahead of the pack. I know that investors will return in a big way in the year ahead.”
Jack Henderson, founder of Henderson Advocacy, said that investor competition would likely ramp up in the coming months as yields continued to rise.
“I think investors will once again dominate the market in the next 12 months,” he said. “I think we’re going to see the owner-occupied purchases come down quite significantly. These buyers will now look to invest because they can’t upgrade, and rental yields are getting stronger.“
This article is from Australian Financial Review, please click the following link for the original article: https://www.afr.com/property/residential/why-seasoned-property-investors-are-back-in-the-market-buying-20221013-p5bpmj