Investors are poised to regain their market share next year after facing uncertainties this year, according to the latest outlook from CoreLogic.
The share of property investors in the market dropped to its lowest level on record this year, hitting 24.8% of the mortgage demand. This inactivity was due to the uncertainties brought about by the federal election, said CoreLogic research director Tim Lawless said.
"The reduction in investor activity prior to the federal election was understandable, considering the uncertainty associated with tax reform under a change of government," he said.
With the eventual win of the Coalition party, investors started to re-enter the market during the second half of the year. However, owner-occupier lending increased even more, pushing the proportion of investor lending lower.
The value of investor home loans rose 1.4% in October, rebounding from a 3.9% decline in September. Despite this uptick, the proportion of investor loans in overall home financing has dropped to 28%, down from the long-run average of 38%.
Activity from investors and their share of the market are likely to rise in 2020 for several reasons. Lawless said the improved prospects for capital gains could attract more investors to the housing market.
"Investors are likely to be motivated by prospects for capital gain, as well as the fact that gross rental yields, although generally low, are likely to be higher than the cost of debt," he said.
And with expectations of lower interest rates next year, investors would likely see more opportunities for positively-geared properties.
However, there is a possibility of another round of macro-prudential intervention from the Australian Prudential Regulation Authority (APRA) should investor activity surpass the long-term average.
"The previous round of credit tightening specific to investors occurred when investors comprised more than 40% of mortgage demand, triggering a macro-prudential response from APRA which limited banks from growing their investment loan books by less than 10% per annum," Lawless said.
Investors have the opportunity to take advantage of favourable conditions next year, with house prices likely to trend higher due to the stimulatory effect of lower interest rates, a lift in investment activity, and an undersupply of new housing.
"At a broad level, we expect dwelling values to trend higher in 2020, however at a reduced pace of growth relative to the second half of 2019," Lawless said.
However, investors might need to broaden their horizons and look beyond the biggest housing markets. Lawless said the sudden turnaround in Sydney and Melbourne will likely start to moderate next year. On the other hand, the affordability in Brisbane and Perth could potentially spur accelerated value gains.
Outside the capital cities, the outlook is diverse, with satellite cities like Newcastle, Wollongong and Geelong getting more attention as buyers seek out affordable housing options.
Lifestyle markets along the eastern seaboard are also projected to remain on the radar of would-be buyers.
"Post the recent housing boom, cashed-up buyers from Sydney and Melbourne have utilised their improved wealth position to purchase investment properties and holiday homes, while baby boomers approaching retirement are also positioning themselves in these lifestyle markets," Lawless said.
Mining regions will continue their gradual recovery after a dramatic decline post-mining boom, while agricultural regions that are drought-affected are likely to remain weak until climate conditions improve.