Property investing - where to now?

Property investing – where to now?

By Lloyd Edge of Australian Investor’s Association

Source: https://www.investors.asn.au/magazine/property-investing-where-to-now/

With property prices continuing to move at a rapid pace, it’s no wonder that Summer is being predicted to be one of the biggest selling seasons in Australia’s history.

A recent report from Ray White found that despite being typically coined “quieter months”, Summer 2022 will be the key time to buy real estate in Australia, as more properties will be available on the market as a result of buyers holding off, and restrictions on finance following the increased interest rate buffer, have left the market wide open for investors to jump in.

Heading into 2022, many of my clients have asked me whether we should finally expect the residential property bubble to burst, and my feedback to them is always the same – don’t hold your breath. The Australian market has proven that it can continue to grow strong even in the midst of a pandemic, so once 2022 hits, it is predicted the market could grow by another 8-15%.

This is predominately attributed to low interest rates, the urbanisation of Australia’s regional areas, and the re-opening of our international borders, which will no doubt see a large influx of overseas investors. So, if you decide to jump on the market opportunity now, be prepared to act quickly and get all your ducks in row as soon as possible, as the competition will be cut-throat.

When it comes to where you should invest during the biggest property boom on record, data is telling us that you may have to forego luxury – with luxury homes in Australia’s most expensive cities increasing by 70% during the pandemic across all states. However, if you are looking for a home in a quality suburb, it is recommended you choose locations that may have remained quite stable in the past 12 months, such as St Kilda West (VIC), Ascot (QLD) and Launceston (TAS).

If you aren’t seeking a luxury investment, but instead are looking for more positive cashflow around this time of the year, you can always try your hand at a commercial property investment, which is also tipped for massive growth in 2022.

Commercial buyer’s agent Helen Tarrant says, “Retail and office spaces are providing some of the best opportunities for investors at the moment, as yields are higher, and the risk is going down, as a result of international borders opening and the economy getting back to normal. COVID-19 lockdowns have also allowed for more stock to come on the market, and particularly in fringe-metro suburbs, so people can snap up some great deals and actually generate positive cashflow through the Summer seasons; something that’s always handy with Christmas and Boxing Day spending!”

When it comes to building an investment portfolio that will actually help you earn money and see positive returns during these next few months, my top tips for investors are:

Don’t set and forget

Equity is a superpower. So if you’re looking to buy something during the Summer months, do not try and buy a property you can hold onto. With the market as hot as it is, it is recommended you purchase a property that you can add value to and increase your capital growth, which can be done through either subdivisions, renovations, duplex creation etc. This strategy allows you to build instant equity, as well as establish capital growth and cashflow. We’re seeing many buyers sell their properties again a few months later for a much higher value, so if you really want to generate a positive income portfolio in this season, buy with a temporary mindset.

‘Bridesmaid’ investment opportunities

Regional parts of Australia are also demonstrating immense property growth, however sometimes the best opportunities come in the form of “bridesmaid” investments. Bridesmaid suburbs are ultimately the towns that may not be the centre of attention right now, but they certainly have just as much to offer.

When we take a close look at the numbers, Mudgee proves that even the smaller towns can provide just as good opportunities as some of the larger regional centres, such as Orange, NSW. For a cheaper investment in Mudgee, you are looking at paying the median of only $470,000 for a house and if you receive the median weekly rent of $420/week than your yield of 4.64% is much better compared to Orange’s 4.12% median rental yield. But it does come with a caution.

When you’re investing it is not only about your rental return. Larger regional centres like Orange can provide you with a better potential for higher long-term capital growth due to the larger population and multiple industries providing the growth drivers.

Diversify your portfolio

It can definitely feel tempting at times to go for the sexy or glamourous property; the one that ticks all the boxes in your head of that dream Summer beach house. However, when it comes to crazy-hot buying seasons, sometimes versatility is key.

Look for a property (whether it’s residential or commercial) that helps you diversify your portfolio and is easy to tenant out, particularly in a busy Christmas season. Also, competition is always rife during these key periods, so choosing a property potentially in a fringe-suburb that has a high yield, can work the best for you in the long run, as long as growth drivers are in place.

Lloyd Edge, Director and Founder of Aus Property Professionals, is a buyer’s agent, property strategist, and author of property book, Positively Geared.