At this time of the year, thoughts start turning to the next year. Although I might save the specific ‘outlook for 2023’ view for the property market as a whole until November or December, it’s pretty clear that (at least) three key issues will remain vital for property investors over the next 12-18 months.
Lending/regulatory environment
In terms of finance availability, banks continue to have a cautious attitude, with low deposit (high LVR) investor loans pretty much impossible to secure unless buying a new-build. There are also signs that the availability of loans with a large debt-to-income (DTI) ratio has also been reined in. It’s hard to see too many changes to these settings in the near term, but if anything, towards the end of 2023, we may still see the Reserve Bank introduce formal caps on DTI ratios while at the same time loosening LVRs a little. This may not help investors much, given that LVRs don’t tend to be as big a hurdle for them as attitudes towards total debt burdens.
Meanwhile, mortgage rates, of course, are always a key consideration – and after the latest 7.2% Q3 inflation surprise (and a potential official cash rate peak of 5%), a typical one-year ‘special’ fixed rate now looks headed towards 7% or above. This will further squeeze operating margins in a world where gross rental yields are low.
And finally, continue to watch regulations. Interest deductibility looms large here, and tax bills have already started to creep upwards for existing landlords. At this stage, it appears that National may lead the next Government, but uncertainty is high, and there’s no guarantee that they would repeal Labour’s property tax changes anyway.
Rental growth
Another aspect for investors to keep a close eye...
