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Caution to Investors & Home Buyers: Strategic Suburb & Property Selection Amid Rising Mortgage Costs

Solid Suburb Selection Amid Rising Mortgage stress has become more important than ever. As mortgage costs continue to climb, an increasing number of property investors are choosing to exit the market, with investor-owned listings in Sydney reaching a record high of 39.8% last month.

This trend is not confined to Sydney alone, with investor exits also being observed in Melbourne, Brisbane, Perth, and Darwin. In contrast, Adelaide and Canberra have seen a slight drop.

The surge in property listings by investors can be attributed to the steep increase in interest rates. Eliza Owen, CoreLogic‘s Head of Research, explains that investors, who typically have higher mortgage rates, are likely to sell their assets to cope with this financial pressure.

The real estate scene is expected to witness more investor-owned properties hitting the market in the coming months. This prediction comes from Thomas McGlynn, CEO of the Sydney-based real estate agency BresicWhitney, who has observed an increase in the number of landlords listing their rentals for sale over the past month. This trend is expected to persist as interest rates continue to rise.

The nationwide increase in investor-owned listings, which stands at 32.7%, is the highest level seen in a year. In Melbourne and Brisbane, the number of previously rented homes up for sale has reached a two-year and 12-month peak, respectively.

According to Tim Lawless, CoreLogic’s Head of Research Asia Pacific, the drivers of the recent trend towards more investors selling are likely to be very different relative to the 2021 highs.

High interest rates are a key factor, with mortgage repayments on a new investor loan rising by 3.75 times as much as rental income (P&I repayments up by around $1,040/month over the past year compared with a $277/month rise in rental income based on the combined capitals average).

The harsh reality is that many investors who bought properties during low-interest-rate periods can no longer sustain their investments due to the higher holding costs. This is pushing a significant number of investors to sell their properties.

More investors are also selling up in Perth, where the share of ex-rental listings widened to 36.7 per cent, the highest since October last year.

Although Adelaide and Canberra have reported a dip in the share of ex-rental listings, they still remain higher than their decade averages.

Suburbs like Kwinana, Northbridge, and Highgate in Perth have recorded the highest proportion of ex-rental listings, accounting for more than 71% of all new stock in June. In Sydney, suburbs like Stanmore, Forest Lodge, and Parklea have seen the largest share of investor-owned listings, with the cash flow shortfall now reaching an alarming $4132 per month in Stanmore alone.

Adding to the challenges faced by landlords, increased taxes on investment properties in various jurisdictions, are also driving up the costs of holding an investment property. In addition to this, regulatory and compliance requirements have also escalated, adding to the complexities of owning rental property.

Conclusion

Amid rising mortgage costs, thorough due diligence and strategic suburb selection are more critical than ever for investors. Although some regions are grappling with mortgage stress and increased sales, others are recording significant growth – as high as 13% in the last 3 months.

Important factors like understanding the optimal purchasing price, managing cash flow, evaluating the ability to sustain a property during market turbulence, and steering clear of high-risk suburbs all require thoughtful consideration. The real estate landscape can be complex and may contain unknowns that investors are not aware of. Thus, consultation with experienced property consultants is recommended to navigate these intricacies and make informed, lucrative investment decisions.

About the author

Amir Sehat is the chief property adviser and buyer advocate at Property Demand, known for his data-driven approach to researching 15,000 suburbs across Australia to identify booming suburbs as investment destinations.

A fun fact about him is that his deep knowledge and enthusiasm have earned him the nickname 'Property Nerd'.

He provides expert advisory and advocacy services to a wide array of clients, including:

- Property investors seeking to purchase high-growth and high-cashflow properties.
- Home buyers looking to avoid costly mistakes and save time
- Property sellers aiming to achieve the highest selling price


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