Yield Drops So Landlords Sell Out.

The real estate market has moved upwards of 20% since late 2012. This growth has directly tracked interest rates going down. Some will argue that low interest rates were the sole cause of house prices shooting up, but others suggest that factors such as insufficient supply and an improved economic outlook were the cause of rising prices. Whatever the cause, no one doubts that there has been a significant growth in house prices.

Amid the noise about price rises, little has been made of the fact that rents have stagnated or even slipped. Although the end result has left many investors with decent capital gains, this has caused rent returns to be lower, relative to the new and improved value of their asset.

Whilst low interest rates pushed an initial wave of investors away from cash, term deposits and self managed super funds and back into property, there are now signs that many long term investors are selling up and cashing out. Recent talk of the boom having peaked have seen a number of investors gearing up to sell, attempting to take advantage of good prices whilst they are on offer.

Only time will tell whether now is the right time to lock in a sale though. There is no suggestion that an excessive amount of investor selling relative to demand is occurring, but there is no doubt more landlords are exiting the market than entering.

When rates were first slashed in 2012, rent returns were stronger and purchase prices were lower, making the dividend yield appealing. It was only in this environment that incoming investors comfortably outnumbered those going out.

Who is selling and buying?

Many baby boomers who invested wisely and prudently in the 80s and 90s are now sitting on substantial paper gains. For many, the option of taking on more real estate investment debt against the increased equity they now enjoy as they near retirement, is unappealing.

Even though prices could edge higher, they may not. Only the most bullish analyst would suggest that the best price growth is yet to come for the housing market. Against this backdrop and still smarting from the GFC, it is understandable that many baby boomers have selected ‘now’ as the time to sell.

Sue and Robert owned their Numa St, Birchgrove apartment for over 20 years. They decided to sell given the market’s current strength. They received 4 offers in 14 days on market, mainly from owner occupiers. Based on the rental return and the sale price of $926,000, their net return would have been around 2%, making the decision to sell a no brainer.

The Inner West has seen owner occupiers quickly out-bid and out-number investors. It has been owner occupiers who have driven prices higher and there are many who believe they will push prices even higher still. Infrastructure such as the light rail extension and improvements of amenities such as local parks has seen the Inner West become a destination of choice for young families.

Historically, young families tended to upgrade further away from the CBD, chasing large houses and garden space. That now seems to be less of the case as young families look to upgrade within the Inner West.

Significantly, in a reversal of trend, many young families are moving from the suburbs back to the Inner City.

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