Property investment can be tricky, but there are rewards for getting it right.
The real estate market goes in cycles and knowing when and where to buy is sometimes more art than science. There’s a lot to think about, perhaps firstly why you are investing. Some people do it for capital growth, others rental income.
For property advisor Michael Yardney, from Metropole Property Strategists, the key to successful investing is capital growth, which is often more lucrative than rent.
“I believe residential real estate is a high-growth and relatively low-yield investment, so investors should aim for capital growth which is not taxed,” he told The New Daily.
Moreover factors like the mining boom came with risks for property investors. Mr Yardney said a few years ago the mining towns were classed as ‘hotspots’ and investors pushed up prices by competing with each other in these relatively small markets.
“Those who got in early may have made a profit, but today many are left with properties worth considerably less than they paid for them. “To me property investment is a long-term proposition.”
He said areas that will outperform are those where potential owner occupiers have high disposable incomes and can afford to, and are prepared to, pay a premium to live.
Real Estate Institute of Australia president Peter Bushby agreed. Property investment is a long-term proposition, he said, but argued one can make money from letting as well. He said people needed to do their sums and calculate how much risk to take. Things to be considered included demographics, population growth, transport and what other facilities were available in the area.
Rob Naish from Hegney Property Group said the property market moved in cycles and the West Australian market at least remained high, albeit with housing prices lower than Sydney overall.
“In the west the mining boom remains a big factor, with a lot of ‘fly-in, fly-out’ workers. We’ve also seen a lot of buyers from Asia.”
Real Estate Institute of New South Wales president Malcolm Gunning said places with good transport were generally a good bet. As well as the inner suburbs of Sydney, he tipped growth in Newcastle which had good employment prospects, transport infrastructure and a university.
To take some of the guesswork out of it, The New Daily spoke with property experts and industry professionals to highlight some likely locations and give you some pointers on what you should consider before signing a mortgage agreement.
Bassendean, Perth, Western Australia
Damian Collins from Momentum Wealth likes this Perth suburb, which is close to the foreshore, 10km east of Perth CBD and 5km from the Swan Valley wine region.
“It is currently an affordable area and is an up-and-coming suburb with a mostly professional demographic due to its proximity to the city,” he notes.
“It is well serviced with great accessibility to the Midland-Perth train line, which stops at Bassendean Town Centre and maintains a good road network.”
There are plans to increase density in areas along the train line and upgrade the Bassendean Town Centre, further improving gentrification of the area and positively effecting property prices. It certainly has drawn interest. Rob Naish from Hegney Property Group talks of a recent open home which attracted 60 inspections and 19 offers.
These northern suburbs of Launceston traditionally have been working class but have the advantage of being neatly located between the University of Tasmania and Launceston CBD.
REIA president and Tasmanian real estate agent Peter Bushby said the Tasmanian economy was fairly flat in line with the state’s economy, meaning property was relatively cheap. Being close to the CBD and university created rental demand however, the university has been building its own student accommodation, possibly affecting the rental market. Director of the Bushby Property Group Phil Bushby said being close to the university, these suburbs had developed a vibrant arts and culture scene.
“It’s an area which is also near the AFL ground (York Park) and has some quaint little cottages,” he said. “Values there are definitely increasing.”
Figures from Australian Property Monitors suggest the Mowbray property market slumped two years ago before recovering.
Dubbo, New South Wales
Well-known as an agricultural centre and home of the famous Dubbo Zoo, this mid-sized regional centre is on the Newell Highway, a handy spot to stop if you are driving between Melbourne and Brisbane. Terry Ryder notes it is a well-established township, but an increase in demand for rare earths and metals is set to boost the mining industry in the region.
“Gains also will be driven by a high fertility rate and strong growth in retirees,” he writes. According to the Dubbo 2036 Strategic Plan, Dubbo’s ‘economic strength lies heavily in the broad range of industries that reinforce its role as a regional service centre for the surrounding Central West and Orana regions’.
Sunshine, which is about 12km from Melbourne CBD, may lack the glamour of Toorak or Carlton but it is growing according to Terry Ryder of hotspotting.com.au, who believes it is set to become “a regional hub” in metropolitan Melbourne.
Jason Allen from Barry Plant Real Estate notes its affordability compared with other suburbs as well as infrastructure such as the Regional Rail Link/Metro west upgrades.
“Many investors and developers are back competing, showing strong interest and confidence in buying a range of properties,” he said. Benefits were primarily in the area of capital growth, he said, with people also able to buy larger allotments than in the inner city.
“Due to lower stock levels mid year, Sunshine is now just starting to flourish with recent auction results going from strength to strength.”
Brisbane has under-performed the averages for the last few years, with only 2.8 per cent capital growth in the last 12 months, and is likely to perform well in 2014, according to Michael Yardney.
“I would buy houses that are situated 5 – 10 km from the Brisbane CBD and particularly properties with the potential to add value through renovations,” he says.
Toowong fits this description and has a number of beautiful old ‘Queenslander’ homes which could be ripe for renovation. It is near the Brisbane River so do your homework and gauge whether a property is likely to be at risk of flooding.
According to RP Data figures quoted in Property Observer, Toowong recorded some house price growth during the past year, following a period of slight decline in the five years previous.
Girrawheen, Perth, WA
Founding director of LMW Hegney, Gavin Hegney, reckons this northern suburb of Perth is worth a look, given it is a little less “heated” than some locations closer to town.
“Investors are now looking at areas further from the city with yields of 5-6% in localities like Girrawheen , Koondoola and Midland,” he says. “Many of these also offer redevelopment potential.
“We still have heated demand for most new (Perth) city properties up to $1m, especially development sites which are witnessing multiple offers at times and some even selling above asking prices.”
Girrawheen is part of the City of Wanneroo, said to be the fastest growing local government authority in WA with a population of about 172,000 today expected to increase to about 354,000 in 2036.
Cities and towns with a strong tourism connection are sometimes treated with caution by many investors, given that industry is faced with competition from cheap Asian locations and the high Australian dollar can be a deterrent for overseas visitors.
But Far Northern real estate agent and commentator Chris Gay argues money can be made in local units which are sometimes underpriced.
“We had a major downturn with unit prices a while ago when and you can still buy them for $160,000-$180,000 and let them for $240 a week,” he says. “That’s a pretty good option.”
He says capital growth in the city is steady rather than spectacular, noting there has been an economic revival since the high-profile collapse of several major development companies during the past five years.
In his regular CairnsWatch report, Herron Todd White research director Rick Carr says capital growth is not universal. “Even though property prices in some areas of Cairns are starting to increase there has as yet been no real uplift in the overall medians,” Mr Carr says.
A city just to the south-west of Brisbane which has almost become an outer suburb given the increasing population and urban sprawl in the Queensland capital. It has a direct passenger rail link with Brisbane meaning one can easily commute for work.
Growth in Ipswich is well-documented but Terry Ryder argues it will grow for some time yet. He notes some key infrastructure projects including the expansion of the Ipswich Motorway, a Brisbane Lions’ AFL facility and a $12bn Springfield Lakes Community Centre as well as a Springfield rail link.
“Ipswich has shown strong growth in the past but we believe its evolution into a headline hotspot of national standing will continue well into the future,” Mr Ryder writes. “There remain many suburbs that are attractively affordable for first-home buyers and investors on a budget.”
Michael Yardney says suburbs like this one are definitely worth a look.
“While the Sydney market has performed very well over the last year – rising 12.5% in the last 12 months according to RPData figures – I still see it as the best performing market in 2014 – especially in the inner west and eastern suburbs – where I would buy established apartments,” he said.
According to the Ashfield Council, the suburb is Ashfield is “a desirable place to live due to its locations, proximity to public transport, affordable housing stock, pleasant natural environment, amenities and its infrastructure”. Ashfield is known as a multicultural community suburb with a significant proportion of the population originating from southern Europe or Asia.
One of the great gold mining towns in Victoria, home to some beautiful old buildings and something of a rural haven for arts and culture. Terry Ryder notes Bendigo has high population growth and good employment prospects. He says local housing prices remained solid during 2012, even when they were falling in Melbourne and around the country.
“Whilst manufacturing is Bendigo’s largest industry by economic output there has been substantial growth in all business sectors,” an economic profile for City of Greater Bendigo notes. Bendigo is also a major service centre for agriculture, particularly in the nearby grazing country.
Park Holme, South Australia
Herron Todd White director and valuer Matthew Richardson likes suburbs such as Park Holme for capital growth while other suburbs in the north may be worth a look for rental properties. “Adelaide has been a bit depressed for a while which probably makes it a good time to invest as it is the bottom of the market,” Mr Richardson says.
Park Holme is about 7km from Adelaide CBD and is part of the City of Marion. It has undergone a lot of renovation.
“It used to have a lot of old war service homes but there has been significant redevelopment,” he said.
“It is the sort of place you would expect capital growth.”
Real Estate Institute of South Australia chief executive Ted Piteo notes Adelaide is a stable market.
“Good investments are medium to long term, South Australia has always been a consistent market, this is has been its strength over time and offers anyone peace of mind and a lifestyle that can only be found in SA,” Mr Piteo says.
Margaret Salvador from Capital Real Estate is a fan of these inner Canberra suburbs.
“Reid is due to undergo a rejuvenation with the proposed Cooyong Street Redevelopment while Braddon is also become very fashionable,” she says.
“I sold a property in this area recently within three days of listing.”
Ms Salvador said Reid had been developed for departmental secretaries back in the 1920s and 1930s.
As well as being close to the CBD, the suburbs are also near to The Australian National University.
She notes the demand for student accommodation, with many parents seeking to buy property for their children to live in while studying.
She noted the possibility of public service job cuts following the recent change in government, however this was mitigated by many bureaucrats remaining as consultants, while a wave of redundancies in the 1990s actually triggered economic activity owing to generous redundancy payments.