1000 Assets Report 2022: How investment properties are changing

It’s exciting to be able to look back on a vast collation of information and draw meaningful conclusions.

Well… it is for data tragics like me, at least.

Our firm recently completed its 1000 Assets report for 2022. It’s a unique data source generated by analysing information from thousands of property depreciation schedules prepared by MCG Quantality Surveyors since 2016. In the process of doing these reports we collect a wide range of information about each owner and their property.

The report collates the data chronologically and divides it into subsets of 1000 properties each of which align very roughly to 12-month periods.

The study includes outcomes for each subset which paints a picture of behaviour at certain point in time. We’ve also tracked the outcomes to help identify trends over the past six years.

 

How investment assets are changing

In a previous article about this study, I discussed changes in the way investors are behaving toward their investment decisions, especially throughout the past two years. You can read about it by clicking this link.

In this article, I’d like to dissect how investment assets themselves are changing. This helps identify trends so investors make smarter decisions about what properties will find the widest appeal among both tenants and eventual buyers.

 

Investment property sizes are changing

The study revealed both investment houses and units are, on average, getting larger. Both have seen their floor areas increase by around 10 per cent since 2016.

Interestingly since 2019 the difference in size between units and houses has reduced. Houses were almost twice the size of units in 2019. Now, they are around 1.6 times the size of units on average.

There’s been demand in the market for larger properties overall (perhaps to deliver additional space for home offices etc.). That said, I suspect the shift away from small investor-only units and toward larger apartments which appeal to both tenants and owner occupiers is behind the change in relative size.

 

Post-purchase renovations remain popular

Around one-third of all investments receive some sort of renovation after purchase, with an average spend of $29,521 property. This indicates buyers are looking for ways to add equity and/or increase rental income.

This could slow somewhat in coming months as investors struggle with rising construction costs of course. While renovation should remain popular, the average spend could well change.

 

Townhouses gain popularity with investors

Townhouse have become dramatically more popular as an investment option over the past

five years. During this period, townhouses as a chosen investment type have grown by 59 per cent, while houses grew 28 per cent. At the same time, units fell as a chosen investment type by 51 per cent.

As a generalisation, townhouses tend deliver a good balance of capital growth potential and rental return. Their smaller land component and more compact design makes them more price accessible as compared to detached homes in the same location.

By the same measure, the average townhouse’s land component, size and design – as well as relative scarcity – in comparison to units delivers more potential for capital gains.

Townhouses are therefore proving popular with investors for sound financial reasons.

Another of the more telling outcomes is the swing toward cashflow-oriented investment options. This is illustrated by the rise in duplex investment.

In the last five years, while investment in units and granny flats has fallen as a proportion of all property types, the percentage of investors buying duplexes has doubled. Duplexes tend to offer high gross returns relative to houses. In addition, having a land component boosts their capital growth potential compared to units.

 

Unit prices have risen

While units are becoming less popular as an investment option, the average amount paid for a unit investment has grown in percentage terms by slightly more than the average paid for a house over the past five years.

This could be the result of the relative size increase for units as mentioned above. Also, after a period of oversupply in many cities, unit prices have now passed through the bottom of their cycle and are strengthening. Relative affordability could also be driving this end of the market as units offer investors a price-accessible entry to many locations.

 

The outcome

What does this tell us about the properties people are investing in nowadays?

Well, investors are being particularly savvy about where they spend their dollars. They want capital gains, most certainly, but cashflow also appears to be increasingly important. This could well reflect people becoming more conscious of their budgeting and ability to service loans and pay for repairs and maintenance. I suspect this will only increase in influence as cost-of-living escalations and rising interest rates play their part.

Also, renovations are helping improving the potential for assets to generate maximum rental income and enjoy capital gains.

1000 Assets Report 2022: How investors are changing

After the trials of 2020/21, I expect ‘adaptable’ and ‘resilient’ to be emblazoned across the plinth of every monument to human endurance erected for years to come.

We’ve been served up challenges in all parts of life and, to our credit, have mostly found ways to alter our behaviours and make the best of each situation.

A great example of this is in the property investment space. Describing the way investor sentiment and motivation has shifted in recent years has been difficult to do via hard data… until now that is.

The quantity surveying business I run with Marty Sadlier sees our team producing thousands of depreciation schedules every year for investors across the nation. In the process of pulling together these reports, we collate an extraordinary amount of interesting data about our clients and the investment properties they own.

It spurred us on to create the 1000 Assets series. It’s a report that’s updated regularly to track trends in investment property markets.

Our 1000 Assets report for 2022 has just been released and it delivers a set of numbers like no other.

For this article, I’d like to talk about the study’s revelations around how investor attitudes are changing, and what they reveal about market direction in the future.

 

What is the 1000 Assets report?

We’ve collated data captured during the preparation of our client’s depreciation schedules into 1000-property subsets from 2016 onwards.

From there, we’ve analysed the numbers to monitor changing investment trends. The study includes outcomes for each individual subset, painting a picture of behaviour at certain points in time. We’ve also tracked the trends between subsets to see how investor thinking and property decisions have evolved over the past six years.

 

The 2022 report: Changing investor behaviour

We’ve identified a range of outcomes in the most recent 1000-asset dataset which runs from July 2021 to March 2022. Here are some of the revelations.

 

One-fifth of landlords live in their investment first

The numbers showed 20.2 per cent of landlords lived in their assets before they’re retained as investment properties. The average lived-in period was four years and four months.

A percentage of these landlords are ‘accidental investors’. They didn’t intend to own an investment property when they first bought a home but became one when they decided to keep the asset instead of selling it.

What’s interesting is this latest percentage is lower than the previous year’s result which saw around 25 per cent all investments lived in first.

My take is that this is a combination of improved education, and accessibility to remote buying opportunities. Put simply, people became more aware of the benefits of investing in real estate and were happy to keep their home and investment property dealings separate. They were also more easily able to seek opportunities outside of their local area. Many appear to have adopted a more purposeful approach to investing rather than simply falling into it by accident.

 

The distance between home and investment has increased

Investors are increasingly investing further and further from their home suburb.

We compared the 1000 asset dataset up to January 2020 against the dataset to November 2021. It showed the average distance between a landlord’s home and their investment property rose from 294 kilometres to 559 kilometres. In addition, the percentage investing greater than 1000 kilometres from home more than doubled during the period.

There’s no doubt the pandemic played its part in this outcome, but so has advanced technology and remote accessibility to experts. For example, plenty of Sydney and Melbourne investors have been keen to purchase in Queensland during the pandemic years and they weren’t letting shut border stop them.

 

Investors are becoming savvier about their strategies.

The figures show investors are improving their self-education and are seeking ways to maximise their returns.

For example, the time between buying an investment property and ordering a depreciation schedule in 2021 is half of what it was in 2016.

A focus on finances and ways to make their investments work harder for them is obviously behind this outcome. With some financial insecurity creeping into household budgets, landlords have been motivated to boost their post-tax incomes as much as possible.

 

There’s less appetite for new-build investment

Investors are shying away from new construction, most likely in response to increased labour and material costs, coupled with a sparsity of available contractors.

Our numbers to 2022 reveal 16.24 per cent of investors bought new-build assets as compared to 2016 when 23.9 per cent of investment properties were new. Given that cost increases look entrenched for the next few years, I don’t expect this trend to reverse anytime soon.

 

What’s this tell us?

Just this small part of the study tells us investors are becoming increasingly more strategic on where they’re buying, what they’re buying, and ways to maximise their returns.

It shows that distance is no longer a barrier to investing, and our ability as investors to remove emotion and focus on the numbers has improved. Investors have always been sensitive to price, so increased building costs have stymied new build investment in lieu of established housing as well.

 

No doubt we’ll continue to evolve and adapt as investors to changing environments. If we watch trends and track outcomes, we can stay ahead of the curve. This is foundational to making better decisions in the future.