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The increased proportion of investors in the property market could potentially heighten the risks associated with a downturn in the current growth phase, according to RP Data.
In September 2013, investment finance commitments made up 37.3 per cent of all housing finance commitments, comprising the highest proportion since May 2004.
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Cameron Kusher, senior research analyst at RP Data, noted several potential pitfalls within this trend.
Looking at those markets with the most investor activity, Mr Kusher said the best time to invest may have passed in some of these.
Highlighting New South Wales, where home values have already risen by 15.9 per cent from their May 2012 low, and Melbourne, where home values have risen 8.6 per cent, Darwin where values are 15.9 per cent higher than their low in January 2012, and Canberra where values have increased 3.1 per cent from their January 2012 low, Mr Kusher questioned the strength of future capital growth.
While Sydney and Melbourne are still currently trending higher, value growth has already moderated in Darwin and values in Canberra are falling.
“My point is that if investors are chasing capital growth, in all likelihood and based on timing, they have already missed the best opportunity. If investors are focused on rental return, yields have trended lower across each of these cities over the past year,” Mr Kusher said.
Also of concern, according to Mr Kusher, is a lack of commitment to the asset clase by some currently investing in property.
“My opinion is that if they aren’t committed then there is potential risk associated in the future where a significant supply of investment grade units may come to market when investors may be looking to exit poor performing assets,” he said.
Mr Kusher also noted the predicted rise in unemployment, with official government forecasts putting the unemployment rate at 6.25 per cent in 2014, up from 5.7 per cent in October of this year.
Mr Kusher said a rise in unemployment may weaken home values, particularly if many investors begin to sell off assets at the same time.
“If we were to see investors look to exit their investment properties, such as they did in 2008, in line with an escalation in mortgage arrears, we could see weakening home values much like [that which] occurred in 2008,” he said.
