Sydney investor Cleo Glyde was also staying out of the market despite the low mortgage rates and improved potential for capital gains.
“I have built a lot of equity in my Brisbane and Sydney properties, but because I am a freelancer, I’m finding it difficult to access these equity,” she said.
“I’d love to buy more but the banks were not keen to lend me money to invest because I didn’t meet their lending requirements. I’m actually thinking of getting a permanent job just so I can get a mortgage.”
With more investors like Mr Pain and Ms Glyde staying away from the market, the owner-occupied-led recovery could falter, economists say.
“In the absence of a big increase in interest from investors, the price gains might slow down,” said Shane Oliver, chief economist with AMP.
“Price growth in Sydney and Melbourne has certainly slowed down and that could be reflective of the fact that pick up in a owner-occupied demand can help push the market only so far, but eventually unless you get investor demand kicking in strongly as well, then the momentum starts to slow down a bit.”
At the height of the property boom in early 2017, investors accounted for nearly half (42.85 per cent) of all loan commitments. That proportion has now fallen to just 28.2 per cent – well below the decade average of 38.1 per cent according to the Australian Bureau of Statistics.
While investment lending picked up by 2.2 per cent in November, it’s nowhere near the growth recorded during the 2016-2018 boom that prompted APRA to impose tight investor lending regulations.
In March 2017 APRA required lenders to limit new interest-only lending to 30 per cent of home loans that they issue. Before that, the regulator also imposed a 10 per cent cap on investor credit growth each year.
Both regulations had been scrapped, but investors were still slow to return.
“The low interest rates can be appealing to investors but it’s also inflating asset prices, which compresses the rental yields,” said Eliza Owen, CoreLogic head of research.
“Lower rents are definitely a concern in Sydney and Melbourne. But I also think investors may just be a bit weary given that there was such a significant downturn between the mid 2017 and 2019.”
Ms Owen said the impact of low investor activity had been most evident in the apartment sector.
“It definitely had an impact on investor-grade stock and we can see that in the divergence between growth in houses and units. Units have not performed as well as houses have in the past few months,” she said.
“I think it’s fair to say that subdued growth in the investor space would have an impact on the length of the current upswing.”
Sarah Hunter, chief economist at BIS Oxford Economics said without investors, the recovery of the building construction sector could also stall.
“Investors make up the majority of off-the-plan and new apartments buyers. While owner-occupiers were helpful, it’s the volume of sales and activity from investors that’s needed,” she said.
Property developer Mark Bainey, chief executive of Capio Property Group, said large projects need a certain number of investors as purchasers to get bank finance.
“Developers need investors, there’s no hiding around that,” he said.
“You can only build so many apartments for owner occupiers but large towers need a mix of owner-occupiers and investors. That’s what makes them get enough sales to get the project off the ground.”