Despite Mortgage Downturn

Property investors are continuing to grow in numbers despite an overall decline in the number of mortgages across Australia on the back of successive interest rate rises.

We look at why this is the case…

Portfolios is part of Australia’s largest independent brokerage network Australian Finance Group (AFG). Throughout March, April, and likely to continue in May, AFG confirms the emergence of a two tier mortgage market, with the proportion of investors surging as sales to owner occupiers decline.

Property investors accounted for 36.9% of all mortgages arranged in April, the highest such figure AFG has ever recorded.  This compares with 10.2% for first home buyers and 16.3% for up-graders.

The remaining mortgages in April, 36.6%, were for refinancing purposes.

Why The Confidence in the Investment Property Market?

In our opinion there are a number of reasons to be confident in the Australian property market, we offer some below and welcome your comments:

• The volatility in the share markets always serves as a reminder of the stability and strength offered through a property portfolio
• When company profits fall dividends stop – amongst all of this property investors continue to take in rental income and experience changes on an anualised basis not day by day
• Property investors – buy and hold particularly – are long term investors – minor fluctuations in the market, and they tend to be minor in Australia, do not pose a threat to long term investors
• The Australian population continues to grow at rates outstripping the supply of housing
• Australian lenders continue to operate on the conservative side of the market meaning there is confidence in the capacity for Australians to repay their debt – unlike the scenarios witnessed in the American sub-prime market collapse. See the comment by Paul Braddick below.
• Rents are continuing to climb across most markets regional and metropolitan meaning investors can get in and hang on for longer.

Property Investors Still Making Money

Property investors are continuing to see potential in the Australian property market, particularly in key market areas such as rural mining communities, growth cities such as SE Qld and Brisbane. Major growth centres, or smaller towns receiving substantial financial and infrastructure investment are good bets.

This is not so obvious as in the resource rich state of Queensland where property prices in the mining communities are still reasonable and rentals are beginning to climb even on the back of the existing investment.

Confidence Amongst Bankers

Paul Braddick, Head of Property and Financial System Research, is upbeat about the state of the housing market and is cautious when discussing the need for deleveraging of debt in the market place.

Braddick says “Economy wide debt to income ratios, gearing ratios and even debt service ratios tell us little about the underlying sustainability of household debt. The distribution of debt across the household sector, lending criteria applied and the strength of the labour markets are far more telling for debt sustainability.”

“Relative to offshore  experience, lending into the Australian household sector has remained very conservative.  This is reflected in the virtual absence of a sub-prime mortgage market and extremely low delinquency and default rates.”

Braddick’s sentiments are echoed across the banking sector.

What Next?

Braddick sums it up well:

“In the near term, Australia’s growth prospects are bright and much will depend on the RBA and government’s ability to effectively manage the expansion. Higher household debt means the RBA has considerable leverage over the household sector and their actions during the GFC should instill confidence that the present upswing in growth will be handled well”

Source AFG Mortgage Index April 2010.

Source ANZ Australian Housing Update April 21 2010

Welcome to 2010.

As 2010 gets well and truly underway let me welcome you to Portfolios, some of you for the first time, and thank you for your time as we partner together to build a prosperous year.

2010 certainly has an air of distinct optimism in it – in contrast to how we were all feeling this time last year following the global market collapse. By this time last year whilst indicators were looking weak – it was also becoming clear that Australia was indeed faring very well on the global stage and that by the end of 2009 things would be looking up.

Well here we are in 2010 and we even hear people saying “what recession?” optimism is paramount and people are looking again to build their portfolio and position themselves in our ever growing property market.

Portfolios has followed these trends and in 2010 we plan to keep you abreast of what is going on in the Australian property market.

This space is an opportunity for us to be controversial, and for you to respond to that in an open and honest fashion.

I personally welcome you to the Portfolios monthly issue – The Mortar and The Money – and trust we will build a great rapport with you as the year progresses.

Here’s to a great year , a year you will remember…

Paul Pritchett