Investing in Australian property:
So many options, so which one is right for you?
So, you’ve decided to invest in property. Or perhaps someone has told you that you should invest in property. People invest in property for a myriad of reasons, and most people have very specific circumstances or some criteria they are trying to satisfy. Generally speaking, people invest in property to diversify their portfolio, reduce tax, create wealth, subsidise their superannuation, or set their kids up.
There are of course many other reasons, and from a financial perspective, investors want Capital Growth, Income Growth, Confidence of Income, and an Appropriate Initial Yield.
What investors need is Returns, Security and Flexibility.
Let’s assume you are looking to invest in a residential property, because for first timers or people new to the market, this is the safest option.
Whatever your reason for investing, and it may be different to those just mentioned, there are key factors you need to consider when investing in property. These include, but are certainly not limited to:
· Vacancy rates
· Proximity to services and employment hubs
Once you are clear on this, you then need to decide where to invest. It all sounds very confusing and difficult, but the reality is, if you engage an industry expert who has proven themselves to be experts, it can be very easy and if done correctly, can set your family up for life.
When considering a property, we ask ourselves a simple question: “Will it provide Continuing Strong Demand for both Tenancy and Sale for now and the foreseeable future?”
A diversified portfolio is a good portfolio. This rings especially true with property. If you live in Sydney you would be wise to invest in Brisbane or Melbourne, and visa versa. So, then what? Which capital city is best for you?
I often tell clients that we are very lucky in this country in that our 3 eastern seaboard capital cities are all very different. They look different, feel different, and are different. So, from a property investment perspective, which one is better? Apart from coming down to personal preference, there are some key characteristics which are relevant today.
Sydney has undergone an unparalleled period of unsustainable growth over recent years. If you bought a (residential) property in Double Bay 5 years ago, you’ve just doubled your money. That’s right, Double Bay experienced 98% growth over the last 5 years. There are many other examples of similar stories in the Sydney metro area, and as such, we currently do not see any value in Sydney. We believe Sydney will see very moderate to low levels of growth in the next few years. This will eventually change, and we will revisit the Sydney market when evidence of this change becomes apparent, but for now we are staying away from recommending Sydney as an option for our clients.
Brisbane has enjoyed a stable property market in recent years and has a lot to be excited about. Large infrastructure projects are currently underway (second parallel airport runway, Queens Wharf precinct, Kuripla Precinct, Springfield tech hub to name just a few) which will change the landscape of Brisbane in coming years. Brisbane is becoming more sophisticated, is now doing food and service very well, and we believe will look very different in 5 to 10 years’ time which will reflect favourably on property values. However, care must be taken in Brisbane as areas such as Newstead will experience some short-term pain with elevated vacancy rates, but this will be absorbed sharply and those with a long-term view will be fine. Having said that, we stay away from recommending these high density, high impact development suburbs and stick with traditionally strong and supported locations where value can still be found. We believe our clients who take a long-term view, and who invest in the Brisbane market under our tutelage will enjoy strong gains over time with secured rental income.
The Melbourne market has long been considered a stable and solid area for investing in property. It mirrors Sydney in terms of growth and performance however offers better value per square metre than its northern neighbour. Melbourne has always done food and service well and has a strong rental market of professionals who gravitate towards high quality housing on CBD fringe locations. It has long been referred to as Australia’s most liveable city, and sometimes even the world’s, however that title has most recently been handed to Brisbane (sorry Melbournites). Nevertheless, we strongly believe in the Melbourne property market and will continue to support it off the back of its underlying fundamentals.
Why only eastern seaboard?
You will notice I only mention eastern seaboard capital cities. This is because they are the only capital cities in Australia which we consider a “major metropolis” as determined by population growth, international and interstate migration, and their ability to stand strong should there be a correction in more than one industry.
In fact, our definition of a major metropolis in regard to property markets is where if there is a change in one, two or three issues that cause a change in underlying supply and demand circumstances to such a degree there is an increase or decrease in either or both capital values or rental levels, then we consider that population base not to be a major metropolis.
For example, unlike Perth, our eastern seaboard capital city property markets will not be adversely affected by a drop in the price of iron ore. Alternatively, eastern seaboard capital cities will not experience a drop in property values, employment or income levels should tourism numbers decline. A situation which will most certainly affect Surfers Paradise property markets.
So, we recommend our clients look at strong inner urban areas of a major metropolis.
What to invest in?
So, you’ve figured out your strategy and your target locations, now you need to decide what type of property is going to deliver the returns you are seeking. Like the abovementioned criteria, there are many options regarding “what type property”. Options for residential investing include:
· Off the plan
· House and land
Each option represents opportunities, but your circumstances, timing and goals will determine which one is right for you. We have experience across each of the above and can demonstrate the pros and cons of each, and how they relate to you.
Our due diligence checklist and market research procedures have remained unchanged for over 22 years because they work. We stick to proven fundamentals to de-risk the process for our valued clients, and always act with a “client first” mentality.
Of course, this is general market commentary and is not to be taken as advice as individual circumstances vary. People interested in investing in property should consult their professional advisors to determine whether it is a strategy which suits your circumstances and goals.
Should you wish to discuss this blog post further or would like to see if we could assist you in your property endeavours please get in touch.