Investors Are Back

It felt more like early summer than late autumn on Saturday as I stood, uncomfortably warm in my suit and tie, in the middle of Gladstone Avenue, Armadale counting the bids as the flew rapidly at me.

After a spirited battle covering a couple of hundred thousand dollars in 10’s and 5’s and eventually 1’s, the owner occupier with his rather bemused Great Dane / Ridgeback pup eventually conceded and I knocked the popular Victorian single front down to the proud new owner. The buyer – an investor from Malvern East.

Four of my last seven auctions of single fronted period homes in the competitive $1,400,000 – $2,000,000 range have sold to investors.

Investors are back!

This is purely anecdotal, and not representative of the broader market… but it is interesting.

Owner occupiers still make up the vast majority of our sales.

There’s a telling stat though to back up our recent experience – loans to investors were up 13% in April, month on month.

The rental environment, battered by COVID last year, is improving. Rents are increasing again and vacancies are falling.

Pre COVID, our rent roll would typically carry around 60 – 90 vacant properties at any one time. This ballooned to well over 200 during the tough lockdown period.

In late 2020 there was a general consensus among the property managers that rents were down 10 – 20% across the board.

But things have turned around rapidly since then. Now we are back to around 100 vacancies and rents are getting back to where they were Pre COVID, and in some instances even exceeding them for good, scarce properties – renovated three bedroom single fronts, family homes near desirable schools, etc.

Smaller two bedroom houses are still down around 5 – 10%, depending on who you talk to. But they are getting leased quickly if priced appropriately.

The two bedroom apartment stock, soft at the bet of times, is still very hard to move, even at reduced rents.

CBD and Southbank apartments and student accommodation? Forget about it. Dead. You’d probably have more luck renting out a VHS of the 1987 Carols by Candlelight hosted by Brian Naylor.

As a flow on effect, and in counterforce to the new investor demand, we are also seeing more investment stock hitting the market.

The new rental law changes in Victoria are quite onerous on landlords… sorry, “rental providers” (landlord is very un-PC these days and the term has been struck from the Tenancy Act).

The new standards of compliance are rather strict and landlords… sorry, “rental providers” can’t let their serfs… sorry, “renters” live in squalor… sorry, “below minimum standards”. Renters can seek compensation from rental providers if these minimum standards aren’t met.

For example, all windows in living rooms and bedrooms must have adequate window coverings to block light and provide privacy. Sounds reasonable, but what if you have an architectural renovation with vaulted ceilings in the living room and triangular glass windows above the rear bifold doors? Are you expected to fit custom triangular blinds just to comply?

If not your tenant could theoretically seek compensation for that dastardly natural light streaming in and ruining their Sunday binge streaming session!

Okay, yes the laws are there to protect renters, which is a good thing. But many landlords (old habits die hard) are already fed up having been through a year of rent relief, costly maintenance with shady tradies, hefty land tax and poor rental returns. So this is yet more impetus for them to throw in the towel and put their burdensome investment properties on the market.

I wouldn’t be surprised if there an influx of investment grade properties coming to market in the months ahead. We’re already seeing it.

Hopefully the demand from first home buyers and new, yet-to-be-jaded investors will help absorb this new stock, which will no doubt be representing great value and reasonable returns in such a low interest rate environment.

Time will tell.