Investment Finance Drives Mortgage Approvals

December 12th, 2013
Low interest rates and growing confidence continue to strengthen the property market, with mortgage approvals rising for the ninth time in ten months. However, fi rst home buyers were under-represented in the latest figures, with the vast majority of new money coming from investors. While this imbalance is causing concern in some quarters, there is evidence that current investment will add to housing supply and dampen prices over time for owner occupiers and renters alike. According to the latest figures from the Australian Bureau of Statistics, home loan approvals rose by 1 percent in October, with prices rising by 4.1 percent. ; The value of home loans for investment properties rose by 8.2 percent, eclipsing owner occupied housing which rose by just 1.7 percent. ; These figures are in line with September results, where first home buyers represented just 12.5 percent of new mortgages.

While rising prices are undeniably putting pressure on new buyers, the long term impact of additional investment money entering the market may be positive. ; According to CommSec chief economist Craig James, "The good news is that investors aren't just buying established dwellings and driving up home prices, but money is being ploughed into new house and apartment developments and adding to housing supply and economic activity." ; ;

The construction industry has being heralded as a major economic driver for the years ahead, with low interest rates and a rising population hopefully leading to sustainable growth and a healthy alternative to mining dominance. ; "It is clear that home construction will play a key role in driving the broader economy in 2014, taking over from the mining sector. And arguably more industries and regions will feel the benefit of increased home building rather than mining construction." said James.

JP Morgan economist Tom Kennedy is equally optimistic about how investment money is being spent, saying "When you look at the breakdown it was fairly broadbased... This is really representative of strength in the housing market and the continual demand for property... Construction loans, which is the one that the Reserve Bank of Australia has been targeting, trying to get a bit of a lift in that sector, they were up about one per cent and that is its third consecutive monthly increase, there are tentative signs of life in that sector." ;

As prices continue to rise across the country, there is a worry that some locations are becoming out of reach for first home buyers. ; However, investment money is crucial to get new housing developments off the ground, which will in effect increase supply and dampen conditions over time. ; According to James, investment driven approvals will also help renters: ; "Many young Australians are banking on investors funding new housing developments, given that preferences have shifted to renting rather than buying in recent years... Home supply is rising and that will keep growth in rents under control."