Where have all the investors gone? – Shannon Davis

Recent RBA figures are indicating that property investors are withdrawing from the market.  What is the cause?  Is it short term?  Shannon Davis from Image Property has been watching this and brings us up to date.
Kevin:  Recent RBA figures and the impact of APRA, I guess, is showing us that investors are starting to pull back a little bit. Which markets are they pulling out of, and why is this happening? What are the long-term ramifications of this? Shannon Davis from Image Property joins me.
I know you watch this carefully, Shannon. What are the figures telling you?
Shannon:  I think the APRA regulations tightening up has had market effects. Also, some of the banks chose to restrict foreign buying, as well, perhaps 16 to 18 months ago, and that has come into play, as well. But typically, Kevin, in any property cycle where there’s been strong capital growth – like the two biggest cities of our country, Sidney and Melbourne – over time, what happens is yields are coming down percentage-wise, and therefore the investor has to top up more and more of a gap or have a bigger deposit to make it viable.
So, over time, just as an effect of its capital growth, you’ll see investors jump out of the market where they no longer see value on a yield basis, perhaps yields hitting 2% rather than a more typical 4%, and they will need bigger deposits or a bigger gap to fund those mortgages, and it will become of less and less appeal.
When you see investors jump back in is when there have been idle prices for a long time or perhaps even prices drop, and those yields percentage-wise are increasing and they get to a more chunky 4% or 5%, you’ll see investors try and jump into that market.
I think Sydney and Melbourne are a victim of their own success, and you’ll probably see less investors with that appetite for now in those two largest capital city markets of Australia.
Kevin:  It seems to be impacting the Sydney market more so than the Melbourne market right now. Is that the reading you get?
Shannon:  Yes. They probably started the party a bit sooner in Sydney than they did in Melbourne. A lot of the immigrants arrive to Sydney and don’t move out of there, so it’s our biggest international city. But yes, it probably started a little bit before Melbourne and hence has come off a little bit sooner, as well.
Kevin:  What are your thoughts on the projections that Melbourne is going to outstrip Sydney in terms of population growth?
Shannon:  Not really my area of expertise, but there are always these types of predictions. I remember back in the heyday of the Queensland expansion that Queensland was going to replace Melbourne as the second biggest city. There are people who say Perth is going to replace Brisbane as the third biggest city.
I have got a lot of doubts and assumptions on those things. I think they ebb and flow, but over time, they generally stay the same. I can’t see any real move from the two big cities staying the way they are.
Kevin:  They do grow in proportion, don’t they? Some cities have their growth spurts and then they have a bit of a decline. What’s your prediction or your thoughts on prices in the southern caps?
Shannon:  I think they’ve had a really good boom, and you can’t last at double-digit growth every year, year in, year out. That would just have a huge inflationary knock-on effect and would actually end up in destruction of wealth rather than creation of wealth.
Over a time, markets are led by fear and greed, and there’s probably going to be more fear in those markets just now where prices have come off, and there are going to be people who are happy with the gains they’d made and try to realize it. But there are fewer buyers on the ground just as they were, and I think some of the other suburbs and states that haven’t had as remarkable rise are doing better right now.
Kevin:  Where do you think the smart investment money is going now? What are you suggesting to people?
Shannon:  I don’t know what to tell them too much. Take a long view of your investments, and over time, you’ll get it right. If you try and pick the market too much… But I think in the short term, Kevin, in one or two years, the leading cap cities will be Brisbane, Adelaide, and Hobart.
There are headwinds for all those capital cities as well, but they’re probably going to lead the way right now.
Kevin:  Good talking to you. Shannon Davis from Image Property. They have offices in Brisbane and in Melbourne. Shannon, thanks for your time.
Shannon:  Thanks, Kevin.

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