While private buyers are retreating in the face of rising house prices and interest rates, property investors are piling into the market in record numbers. What’s going on?

With interest rates set to increase further in the rest of the year, and with strong house price growth across the board, real estate property investors are steadily increasing their share of the mortgage loans market, and are very confident about property as a sound long-term investment.

Figures from the Bureau of Statistics show that while loans to private lenders fell 10 percent in the first 4 months of the year, lending to property investors rose by 11 percent. Over the past year, the increase in lending to property investors has increased by 30 percent nationwide.

The graph below shows the increase in loans granted to real estate investors in the first four months of 2009 compared with 2010.

According to Angie Zigomanis, an analyst with BIS Shrapnel, investors don’t appear concerned about rising rates, and the increase in property prices over the past year makes them see real estate as “a safer bet than the stockmarket”. He added that investors were using money they “had been keeping on the sidelines”, and with their jobs intact, they were looking to put their funds to work.

“If you stick money in a term deposit it faces tax. A lot of people are averse to putting it in the sharemarket, given how it’s been going, and residential property has bottomed out and has been climbing for 12 months.”

“That’s given people confidence to jump back in.”

Mr Zigomanis added that a key factor for some real estate investors would have been the fact that the government had not made any moves against negative gearing following the Henry tax review. This has given renewed confidence to investors who use this strategy as an ideal way to reduce their tax and to build their wealth for the future.

It is clear that property in Australia is proving a solid investment as prices continue to rise at rates of around 8 to 10 percent a year. (In the past 12 months, some capital cities have experienced price growth of closer to 20%!) Banks are willing to lend if you are going to own one of these valuable growth assets, with a major positive factor being that the investor mortgage has three sources of support, being you (the owner), the tenants, and the Australian Government in the form of tax concessions.

The trend of real estate investors increasing their share of the market looks set to continue, with this demand supporting continued property price growth.

* Source: Martin, P. “Investors ignore signs and pile into property”, Sydney Morning Herald, 16 June 2010.

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