Investor sentiment impacted by skyrocketing property prices

The PIPA (Property Investment Professionals of Australia) Annual Investor Sentiment Survey 2021 has shed light on what investors are thinking in response to the current property market conditions. 

The steady decline in housing affordability, with the annual growth rate in housing values reaching 20.3%, has made its impact. Compared to 41 per cent from last year, 71 per cent of investors now believe prices in their state or territory will increase over the next year.  

The pandemic has made remote working more commonplace and investors are looking at relocating due to housing affordability and improved lifestyle factors — such as less crowded cities and less active cases —that may be gained from living in more regional areas.  

Investors are also favouring regional and coastal areas for investment purposes, with Queensland becoming the leading location for offering the most potential. 58% of investors believe so, and this is up from last year’s 36 per cent.

Compared to last year’s PIPA survey, it seems the positive sentiment gained from booming property prices has now been mitigated by increasing housing unaffordability and the recent rise in COVID cases, which has impacted investors’ willingness to enter the market.  

However, 62 per cent of investors still believe it is a good time to invest (down 5 per cent from the last year). There is a market division, with 38 per cent of investors more likely to buy property in response to the pandemic and resulting market conditions, and 29 per cent less likely.  

“Part of the reason for the uplift in property prices over the past year has been the continued low levels of supply in most locations around the nation... With a decrease in the number of investors indicating they intend to sell over the short-term, it seems unlikely that this boom market cycle is going to change anytime soon.”

- Peter Koulizos, PIPA chairman 

But there’s another factor at play for investor sentiment that hasn’t been covered by the PIPA survey. The RBA has warned against the increase of housing debt, as it could cause instability in the Australian economy. Financial regulators such as APRA are set to implement lending restrictions which will greatly impact investors’ ability to expand their portfolio.

As these lending restrictions become enforced and limit the ability of investors, we may finally see an end to the continuously skyrocketing property prices. The restrictions aim to benefit those looking to purchase owner-occupied properties in order to increase housing affordability and decrease housing debt, and shift the power in the market back to the buyers rather than vendors. This is predicted to have a huge impact on investor sentiment and might cause a shift to investments options beyond property.

References

PIPA. (2021). Property investors expect prices to keep rising and want to work with qualified advisers: PIPA national investor survey. PIPA.

Lawless, T. (2021) Australian housing values rising at the fastest annual pace since June 1989, but the monthly rate of growth continues to lose steam. CoreLogic.