The suburbs Australian investors have flocked to for their affordability and easy entry points are now shaping up as the biggest losers in the property downturn banks are warning about, which could catch thousands of portfolio landlords off guard.
While the major banks trade in headline-grabbing forecasts of double-digit price falls, property strategists argue that in reality the impact will be highly variable. Areas dominated by owner-occupiers are expected to side-step the most dramatic reversals.
“If you think about the budget tax changes, the whole intent is to make it more affordable for first-home buyers, right? Well, on the other side, this means it will most seriously impact the investor,” Rasti Vaibhav, founder of buyer’s agency Get RARE, tells The Australian’s The Money Puzzle podcast.
Before the government made sweeping changes to negative gearing and capital gains tax, investors concentrated heavily on suburbs where prices were relatively attractive, offering a good entry point for buyers.
Those pockets – especially in Sydney and Melbourne – are poised to suffer the worst of the housing downturn.
For investors, Vaibhav suggests the solution is to concentrate on suburbs where owner-occupiers dominate and investors remain thin on the ground.
Look at the fundamentals
“Our conclusion as a buyers’ agency is to keep looking at fundamentals, look at the homeowner-occupied zone which are still doing well actually,” he says.
“Concentrate on the fundamentals: well-located property where the employment is strong, where there are schools, where families wish to live. So, even if you want to go into the market as an investor, go with the mindset of an owner-occupier.”
Vaibhav’s approach is borne out in the statistics. A report earlier this year from Cotality raised eyebrows when it was found that units in owner-occupied suburbs grew by 99% in value between 2010 and 2026. But over the same period, units in what Cotality refers to as “investor-heavy suburbs” gained just 65%.
Following the budget changes, Vaibhav says investors are being targeted by industry promoters to buy newly built homes and capture the budget exemption. Investors can still claim negative gearing benefits but only if they are adding to new housing supply.
“Investors are being presented with this solution which is ‘let’s go and chase the tax depreciation benefit in the new builds or even let’s buy commercial property’,” Vaibhav says.
“We see these choices becoming more popular but for all the wrong reasons.”
Vaibhav says investors may find it easy to buy and negatively gear newly built properties, but they will face a problem down the track when they go to sell these properties because the next buyer will not be able to gain the same negative gearing benefit as the property will be deemed “established” and therefore lose the tax benefit.
Ray White chief economist Nerida Conisbee says the “investor zones” that will be impacted may not be the most obvious.
She says those zones traditionally identified with inner-city apartment clusters such as Alexandria in Sydney or Docklands in Melbourne have more recently come to include outer suburbs, which offer attractive entry points for investors. Those are properties priced under $850,000.
“The investor zones that are going to be impacted may not be the most obvious,” Conisbee says.
“I’m thinking of areas such as Ipswich in Queensland, Epping in Victoria or Elizabeth in South Australia. In recent times we have seen a lot of investor activity in these areas.”
Unlike bank economists, who have been forecasting drops of more than 10% for residential property, Conisbee thinks the falls will not be as severe.
“I don’t think we are going to see falls like that; replacement costs really matter here,” she says. “I think they will put a floor under the market.”
This article first appeared in The Australian as Why owner-occupier suburbs will thrive as investor zones face falls.
