Introduction
- Mortgages for investment properties are a key component of the Australian
mortgage market. In 2003 lending commitments for investment properties
amounted to almost 40 per cent of total lending commitments and more than 20
per cent of adults own investment property. Why has this market performed so
well? How will it perform going forward? This briefing provides the answers.
Scope of this report
- Covers the investment property mortgage market in Australia with
comparison to the buy-to-let mortgage market in the UK
- Includes an estimate of the size of the investment property mortgage
market and a forecast of lending commitments to 2008
- Based on in-depth interviews with mortgage executives
Research and analysis highlights
- Given the factors pulling in its favor it is no surprise that the
Australian investment property mortgage market has grown as rapidly as it
has done. What is perhaps most remarkable, however, is just how significant
the investment property mortgage market is in Australia.
- Having hit a peak in August 2003 of 40.0 per cent of total lending
commitments, in September 2004 lending commitments for investment properties
amounted to only 34.3 per cent. This is the lowest percentage contribution
to total lending commitments since February 2002.
- In September 2004 Commonwealth Bank had a higher value of investment
property loans outstanding than any other lender in Australia, amounting to
AUS$30.8 billion. The next nearest competitors were National Australia Bank
and Westpac, some way behind with loans outstanding of AUS$32.0 billion and
AUS$28.5 billion respectively.
Key reasons to read this report
- Identify the factors that have driven the growth of the investment
property mortgage market over the last few years
- Examine evidence suggesting that the investment property mortgage market
has slowed in 2004
- Identify lenders with the greatest exposure to this area of the mortgage
market
CHAPTER 1 INTRODUCTION
- Who is the target reader?
- Scope
- How to use this report
CHAPTER 2 MARKET CONTEXT
- The growth of the Australian mortgage market
- Lending commitments for housing amounted to AUS$197.6 billion in 2003
- Property prices have increased dramatically
- Housing credit aggregates per adult have now surpassed AUS$35,000
- The growth of the investment property mortgage market
- Lending commitments for investment properties amounted to AUS$75.9
billion in 2003
- Loans for investment properties have taken a larger share of total
bank lending
- Mum and dad investors have driven the investment property boom
- Loans for the construction of investment properties have become a
less important contributor to total loans for investment properties
- The investment property mortgage market in Australia is
significant by international comparison
- Market drivers
- Government policy has fuelled demand for privately rented
accommodation
- Positive macroeconomic conditions have driven the market
- Rapid property price increases fuel the investment property market
in three ways
- Negative gearing makes property investment attractive as a tax
minimization strategy
- Property has been viewed as a better investment alternative
- Investment property has increasingly been seen as a retirement
funding vehicle
- Rental income provides an additional motivation for purchasing an
investment property
- Product innovation has ensured a wider choice for investment
property buyers
- Spuikers have been a cause and a consequence of the markets
growth
- Brokers have not had a disproportionate impact on the investment
property mortgage market
- The make up of investment property owners
- The market slowdown: evidence from 2004
- Lending commitments for investment properties are down in 2004
relative to 2003
- The investment property mortgage market is slipping relative to
the owner occupied mortgage market
- Accounting for the slowdown
- Weakening property price growth discourages investors looking for
maximum appreciation in the value of their investment
- Weaker rental yields make investment property ownership less
profitable
- The ATO is showing more interest in investment property owners
- The NSW Vendor Transfer Tax has contributed to the slowdown
- The market revival is boosting confidence in share market
investment
- Conclusion
CHAPTER 3 COMPETITIVE DYNAMICS
- Competitor data
- Investment property loans outstanding, September 2004
- The big five have a similar share of the investment property and
owner occupied property mortgage markets
- National Australia Bank...one to watch in the investment property
mortgage market
- On average investment property mortgage loans account for 35 per
cent of banks loan books
- While some banks have lowered their exposure to the investment
property mortgage market in 2004 others have increased it
CHAPTER 4 FUTURE DECODED
- Forecasting lending commitments in the investment property mortgage market
- Lending commitments for investment properties will reach AUS$93.1
billion by 2008
- Mortgages for investment properties will remain a key component of
the mortgage market
- There will be a divergence in risk appetite over the next 12
months
CHAPTER 5 APPENDIX
- Supplementary data
- Definitions
- CAGR
- Cash rate target
- Lending commitments
- Low-documentation mortgage loans
- Non-conforming
- Future readings
- Relevant links
- Datamonitors custom research capabilities
- SPP writing team
- How to contact experts in your industry
- List of Tables
- Table 1: Housing credit aggregates per adult, 1999-2003
- Table 2: Loans for investment properties as a percentage of total
mortgage loans advanced in the UK and Australia, 1999-2003
- Table 3: Number of loans advanced to first time buyers, 1999-2003
- Table 4: Median house prices according to the Australia Bureau of
Statistics and the Real Estate Institute of Australia
- Table 5: Macroeconomic projections underpinning Datamonitors forecast
of the Australian investment property mortgage market
- Table 6: Forecast of lending commitments in the investment property
mortgage market, 2004f-2008f
- Table 7: Mortgage loans outstanding for investment properties, March -
September 2004
- Table 8: Mortgage loans outstanding for owner occupied properties,
March - September 2004
- Table 9: Investment property loans as a percentage of total mortgage
loans outstanding
- List of Figures
- Figure 1: Mortgage lending commitments have increased almost
continuously since 1990 but have grown on a particularly steep upward
curve since 2000
- Figure 2: At the end of 2003 the Australian house price index for an
established house reached 245 index points
- Figure 3: Housing credit aggregates per adult now surpass AUS$35,000
- Figure 4: In 2003 lending commitments for investment properties
amounted to AUS$75.9 billion, accounting for 38.4 per cent of total
lending commitments
- Figure 5: Loans for investment properties have taken a larger share of
total bank lending in recent years
- Figure 6: The investment property boom has been driven by individuals
as opposed to other types of investor. Individuals accounted for 82.5
per cent of lending commitments for investment properties in 2003, up
from 49.7 per cent in 1992
- Figure 7: Loans for the construction of investment properties have
become a less important contributor to total lending commitments in
recent years accounting for less than 10 per cent of lending commitments
for investment properties in 2003
- Figure 8: The Australian investment property mortgage market is a much
larger component of the total mortgage market than its UK equivalent
- Figure 9: Since 2001 first time buyers have been forced out of the
property market to the extent that in 2003 they accounted for less than
14 per cent of dwellings financed
- Figure 10: The average of median weekly rent levels for a house in the
state capital cities has increased by more than 25 per cent in the last
five years surpassing AUS$230 in September 2004
- Figure 11: Lending commitments for investment properties are down in
2004 to an average of AUS$5.6 billion per month in the nine months to
September
- Figure 12: Lending commitments for investment properties accounted for
34.3 per cent of total lending commitments in September 2004, down from
a peak in August 2003 of 40.0 per cent
- Figure 13: The performance of the Australian share market has improved
since the start of 2003 with the S&P/ASX 200 Price Index growing by
more than 27 per cent
- Figure 14: Commonwealth Bank has the highest value of investment
property loans outstanding, amounting to AUS$38.0 billion in September
2004
- Figure 15: The big five hold almost 85 per cent of bank lending in
both the investment property and owner occupied property mortgage
markets
- Figure 16: HSBC has 60.9 per cent of the total value of its mortgage
book in the investment property mortgage market
- Figure 17: While some banks have decreased their exposure to the
investment property mortgage market in 2004, others have increased it
- Figure 18: Lending commitments in the investment property mortgage
market will continue to increase over the next five years but will do so
much more slowly reaching AUS$93.1 billion in 2008
- Figure 19: Datamonitors core consulting capabilities
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