Property Investment In Australia - What You Need to Know
Your guide to property investment in Australia, from property investment strategies, where to buy and tips for new investors.
- Property Investment Outlook
- Where to buy
- What strategies work well
- First time investors
- Diversify
- Mistakes to avoid
- Tenancy rules
What Is the Outlook for Property Investment in Australia?
Up until recently, the outlook for property investment in Australia appeared relatively stable. However, with the outbreak of Coronavirus and the impact on global markets there is much more uncertainty on what may occur over the next 6 -12 months.
Interest rates are very low and rental yields relatively high and there has been steady population growth and demand for housing. These factors show why many areas in Australia have been seeing an increase in property prices.
Population Growth
Looking at the ABS website, Australia’s population grew by 1.5% during the year ended 30 June 2019.
Source:ABS
A fairly modest increase, however when we combine this with a lower supply of housing it can cause house prices to rapidly rise.
Exchange Rate
In terms of how we are tracking with exchange rates, we are now at a 7 year low, at around 55c to the US Dollar.
Data Source: Statistics taken from the RBA website
This potentially gears us up to a great comeback once the global economy picks up.
Owner-occupiers are starting to get back on the property market, particularly those who may have missed out over the past 5 years. The outlook was looking more positive and demand is likely to grow again once things settle down.
From our own experience, we have seen some investors who have not been on the market for a while, return to open home inspections. Those who have not been negatively affected by the changes to lending criteria are active in the property market and with negative gearing still intact, younger newer investors are also in the mix.
Once the global economy recovers, the Australian market will be attractive to more foreign investors. Interest for foreign buyers is still one of the lowest in terms of stamp duty.
Even though our interest rates have dropped, it’s still one of the better options.
Recent Growth In Property Market
If we look at the statistics from September 2019 – we can see there has been growth in capital cities, with an average September quarterly increase of 2.4%
Source: ABS
According to the ABS, the weighted average of the Australian capital cities Residential Property Price Index:
- rose 2.4% this quarter
- fell 3.7% over the last twelve months
From this we can clearly see evidence of the downturn from 2018, with a recovery starting in 2019.
Supply has been predicted to be low which would positively impact house prices.
“The long lead times on higher-density construction mean the supply response is likely to be slow. The tight conditions on lending to developers may mean it is even more protracted. The growth in demand without a meaningful supply response will lead to a larger price response.” Dr Guy Debelle, Reserve Bank deputy governor, RBA tips housing supply shortfall, Oct 17 2019
With our borders temporarily closed, population growth in Australia will slow easing the demand and pressure on rising prices.
Where Should I Invest in Australia?
Melbourne
Melbourne apartments are great value, particularly one-bedroom apartments. Rental return is much better – % growth would outgrow a comparison Sydney property and with a lower price tag it’s a more attractive proposition.
Units over houses provide better value for an investor, with higher rental yield and lower maintenance costs.
According to SQM Research in Feb 2020 the average rental yields for Melbourne are:
- All Houses: 2.8%
- All Units: 4%
Source: SQM Research
Sydney
There are also some great options in Sydney; areas such as Westmead and Carlingford are good value, with access to quality schools and services. You can expect to pay around $650-750k for a 2 bedroom apartment, with a rent of $550 thereabouts.
For example: one of our projects in Carlingford (Landpearl Carlingford) offer 2 bed 2 bath 2 car in the $600k’s. This is exceptional value compared to Epping and Macquarie Park (typically in the $900k’s) where there is a lot of attention and media coverage.
In terms of infrastructure projects: North Connect will be connected this year with access roads to Carlingford.
In addition, the Parramatta light rail, due in 2023, will provide access to Westmead another recommended suburb. As these infrastructure projects are relatively small, they tend to get less media coverage than say WestConnex, but their impact on the local area is significant.
Brisbane
For Brisbane, the suburb of Mango Hill in the North Lakes District has affordable property with good access to amenities and transport.
There is ample supply of luxury apartments in the inner city compared with the local population (just over 2.4 million) so these areas should really be avoided.
What Strategies Work Well When Investing in Australia?
By assessing a property against the three A’s: Availability, Accessibility and Affordability we are able to make strategic purchases that are more likely to yield strong returns.
Availability
In an area that doesn’t have 1 bedroom’s and there are only 3 or 4 in the building – buy it as it is a rare commodity.
Accessibility
Check the area for local job opportunities, amenities and transport links. Is the property close to a business park or a health area, are there transport development plans which may encourage growth in the area?
Affordability
You need to be able to afford the area you are buying into. If the area you are looking at is too expensive look for other opportunities in surrounding suburbs.
Also look at the supply and demand you may be able to buy property from a development now at today’s prices. It may take 24-36 months to be built and in that time the market will likely have gone up and this is how you can grow wealth.
What Do First Time Investors Need to Know Before Diving Into an Investment?
Firstly seek proper legal advice and know where the transaction boundaries are so that you are not taken advantage of.
Know your ball-park figure of how much you can afford. Don’t be intimidated, if it feels overpriced maybe you are in the wrong market, consider switching to a more affordable area.
Unless you have made an offer or put yourself in the position you don’t actually know if you are favouring cash flow or asset/ capital appreciation. The rules of attraction might change once you’re in the market.
How Can I Diversify My Portfolio?
Start with the same product in different areas. Once you have a bit more experience branch out into different products in residential property.
For example: stick with 2 bed apartments if you are used to buying these as you have gained knowledge to help you buy the right place.
You start to see differences once you have bought a few properties with similar layouts and you better understand the behaviour of a particular demographic (e.g: better understand your renters and what they look for in a property).
Once you understand the market you can use that knowledge to move across the board in the city and try different products (townhouses, houses etc). Understand how people buy and rent and purchase then you understand how the city is run.
What Are The Typical Mistakes People Make When Purchasing Investment Property in Australia?
They buy what other people buy and not what they are actually comfortable with. It’s like wearing someone else’s shoes! Too tight or too loose – it doesn’t fit your investment profile.
Go with a mentor or someone else who is buying, don’t be worried you aren’t buying the same thing as you will have different risk profiles.
What Are the Laws That an Investor May Need to Be Aware of?
Tenancy laws and any vacancy taxes, be aware of these as they can change state to state.
In Victoria, the vacancy tax discourages investors from not having anyone living in their property.
You can find more information on tenancy laws below:
- Victoria Rental Laws – Consumer Affairs Victoria
- Rental Tenancy Authority Queensland
- NSW – Fair Trading – Rental information
To summarise, there are many different areas and opportunities for property investment in Australia for varying budgets.
By taking a strategic approach by looking at the three A’s, we can make wiser decisions when it comes to purchasing property as an investment.
With the disruption from the coronavirus outbreak, there will be some uncertainty, however the market will grow again once normality returns.
