Despite there being many warnings about capital growth slowing and rental yields stagnating, along with decreasing housing affordability, investors are still buying. In fact, investor demand for home loans has hit record highs.
According to finance groups, investors accounted for some 40 percent of all new home loans taken out in May 2014. Over this month, $4.2 billion worth of home loans were approved, with 2 out of every 5 home loans being taken out by investors – an all time high.
Low Interest Rates Driving Investment
While consumer confidence fell post federal budget, low interest rates are said to be the key driver in increased investment activity. Low interest rates, according to economists, are encouraging investment property buying as investors have greater borrowing power and increased cash flow.
Looking to make a sound profit and to increase their property portfolios, investors have seen low interest rates as a way to possibly get ahead financially. Property investment advisers suggest that if vacancy rates remain low, then investors could reap the rewards when home loan rates climb. But, this depends entirely on their investment strategy and ability to manage their portfolio.
Investment loan data positive across Australia
According to data collected during May, New South Wales recorded the highest numbers of investment loans in Australia with almost 1 in every 2 home loans being for investment purposes. Other states also recorded increased investor home loan demand.
In Victoria, investor home loan demand hit 40 percent, and there was a steady increase in investor activity in Queensland. In South Australia and Western Australia, investment home loans accounted for 30 percent of all home loans taken out during the month of May.
Sound property buying based on investment strategy is the key to success long-term
Property investment advisers suggest that investors who are looking to increase their property portfolio and to make strong profits long-term, need to research well before buying property based on their investment strategy. Property that is situated in areas of demand and is more appealing to tenants will produce better rental yields, while property in developing areas will produce stronger capital gains at a later date.
It is also suggested that all investors have a financial buffer in place to compensate for any vacancies. This will then allow them to reduce any risk when interest rates rise.
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Written by eChoice