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What Lending Data Tells Us About Perth’s Rental Market

More investors took out loans over 2023 than ever before.

We explore why and what it means for Perth’s rental market.

Investor lending on the rise

ABS data reveals that investor lending rose 18.5% to $9.21 billion in the year to January 2024. This means investors now account for 36.7% of all loans taken out across Australia. The number of loans being given to investors peaked in November 2023 at 2,211 – the highest on record.

The data also shows that loans to WA investors grew by $11 million, or 1.2%, over January 2024, revealing that more people than ever are looking to buy an investment property in our state.

What this could mean for Perth’s rental market supply

The media often portrays investors negatively—as people who take away supply from owner-occupiers and unfairly boost the price of property.

The reality, however, is very different.

Without investors buying property to let, there would be no private rental market. And if there’s one thing Perth needs right now, it’s more rental properties.

After all, supply is so low that the citywide vacancy rate is just 0.4%—meaning that for every 1,000 rental properties in Perth, only four are on the market at any one time. As we have written before, this lack of available stock and high demand have been combining to create a rental crisis in our city.

The only way to alleviate this is to increase supply. When investors buy more property, this eventually translates into more stock coming into the rental market. That’s especially true when investors buy new property and add to the overall amount of housing available in Perth.

New property loans on the rise

On that front, there’s great news. The number of loans for those purchasing land in WA rose 21.0% over 2023, and the number of construction loans rose 52.7%, showing investors are interested in increasing supply.

REIWA reported that many of these loans have been taken out by investors from other parts of Australia – underscoring Perth’s attractiveness as a market for residential property investors.

It also noted that the only way to restore Perth’s market to some form of equilibrium was to continue to encourage investors to buy new properties to let – something that we happen to agree with, too.

Strong yields and capital gains countering higher interest rates

What’s interesting is that the rise in investor lending is happening in the face of higher interest rates. The Reserve Bank raised the official cash rate from 0.1% to 4.35% over 2022 and 2023, substantially increasing the cost of borrowing.

However, Perth’s strong yields serve as a counterbalance to high rates, and any increase in interest repayments has been more than offset by capital gains.

According to CoreLogic, the median Perth house now returns a gross yield of 4.4%, while apartments return a yield of 6.2%. On top of this, Perth’s median house price rose 18.8% in the year to February 2024, while the median apartment value lifted 15.9%.

Taken together, the median Perth house provided investors with a gain of 24.0% over the past year, while the median apartment returned 23.1%.

This made the Perth residential property market the strongest of any capital city.

The future for Perth’s rental market

With a strong economy and strong population growth set to continue, it’s likely we’ll see local investors continue to borrow and buy, as well as more interstate investors coming into the Perth market. This is likely to push property prices higher over 2024.

What’s needed more than anything is an increase in supply for them to invest in. New developments, especially medium and high-density, and infill developments, are crucial to the future of our city and its rental market.

We’re hoping to see more quality projects getting built in Perth over 2024, especially close to the city centre, to encourage investors and help alleviate our city’s chronic rental crisis.

Want more?

If you’re looking to invest in Perth real estate, rent out your Perth property or find your next Perth rental home? We can help. Get in touch with our specialist Perth rental team today.

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