What are other investors doing? Surveys of other investors show they’re gearing up to purchase more property, and are very bullish about near-term capital growth, though slightly less excitable than a year ago.
I always find it interesting to hear what other investors are doing.
Not that I’m looking for tips. I’m just curious about where the market is at.
And over half the market in Sydney right now being driven by investors, it pays to know what’s driving investor psychology.
And if you know me, you know I’m a data guy. Vague stories about certain markets being hot, or certain segments getting active are great, but often they’re just stories. Show me some data.
Lately I’ve been tuning into Digital Finance Analytics. I like these guys because they’re not just rehashing the same old data with their own spin. They’re actually getting their hands dirty.
The conduct their own survey and build they’re own data set.
And it pays off. In many ways these guys broke the story about first time buyers in Sydney becoming first time investors. Now everyone is talking about it.
So just what do other investors think?
DFA break the investor segment down into ‘solo investors’ – investors who only have one IP; and portfolio investors, like me.
On their estimates, there are about 900,000 solo investor households in Australia, while there’s a little less than 200,000 portfolio investors.
This tells us that portfolio investing is still very much a niche activity.
Don’t believe the hype.
The average age of the first time property investor has been steadily falling over recent years, and now stands at just 38 years of age. In large part this has been driven by the rise of first time investors – investors skipping the PPR and going straight to the IP.
However, this trend has really only taken off in the last couple of years, and at the moment, seems localised to Sydney. My bet though is that as this boom phase extends, we’ll see more and more first time investors, extending from Sydney to Melbourne.
It’s interesting to look at what’s driving solo investors. The main drivers motivating a purchase are “the continued potential for appreciating property values and the tax efficient nature of the investment.”
Capital gains and tax breaks.
However, capital gains are less and less of a motivator, reflecting the maturity of this phase of the boom cycle.
Solo investors also think they’ll get better returns in property than in bank deposits. (Another no brainer), but low finance rates aren’t such a big motivator.
Nevertheless, from an investment perspective, many solo investors see property as the only game in town.
DFA also asks solo investors what might be a potential barrier to future property purchases. Current prices aren’t so much of a problem. The percentage of solo investors who think property prices are too high has been steadily falling, and is now less than 18%.
The number of people citing potential unemployment or personal circumstances as a barrier has also been steadily falling, which can be taken as an economic positive.
There has been a rise in the percentage reporting problems with potential changes to regulation (reflecting media focus on potential LVR hurdles and APRA monitoring of interest only loans). That said, almost nobody said that access to finance was a problem (so much for tighter credit markets). Nearly half of all solo investors expect to get an interest only loan for their next purchase.
DFA estimate that about 3.5% of SMSFs have an investment property in their fund, and a further 3% are actively considering this investment route. Like investors they’re motivated by capital gains and tax breaks.
Most SMSFs learning for themselves, with a fall in financial planner advice offset by a rise in ‘own knowledge’ and ‘internet forums’.
Looking at portfolio investors, they’re also motivated by capital gains and tax breaks, though tax-breaks are relatively more important over all, and over the past year there’s been a strong switch away from capital gains in favour of tax breaks.
DFA reports that the portfolio segment is growing strongly, with solo investors using the capital gains associated with the IP to leverage into further property purchases. Classic growth strategy.
DFA also report that the number of portfolio investors with 10 or more properties is steadily increasing, as is the number of people who report that property investing is their main source of income.
If you’re one of the lucky ones who have turned property investing into a job, congratulations. Hats off to you.
Overall, it looks like investors are going to be much more active than other home-buyer segments.
Though, this also highlights the importance of down-traders in recent years. Many people have expected this segment to accelerate in coming years as baby boomers retire and move into properties that are smaller and easier to maintain.
For the moment, this effect is being offset by a combination of investor and up-trader buying, but will be something to watch.
This investor interest is reflected in the outlook for prices, with investors generally a little more bullish than other investment types:
However, most segments are a little less bullish than a year ago.
Overall, all this seems consistent with a market that is a few years into a boom phase. Investors are still driving the market, but at a slightly less vigorous pace. Expectations around prices are also slightly less bullish, but very strong overall, particularly in the investor segment.
There also seems to be few serious impediments to purchasing property, with the employment outlook firm, and credit easy to come by.
What do you think? Does this data describe you?
Are you an average investor?
Where’s the difference?