Property investment is generally viewed as a long-term game, and with record low interest rates and continuing pressure for more cuts, the property market remains strong.
This strength was illustrated over the weekend, when, according to RP Data, the property auction clearance rate across the country hit a six-year high of 78.3 per cent.
As usual, Sydney delivered the best result for sellers, with a massive 85.1 per cent clearance rate, followed by Melbourne at 77.8 per cent.
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Overall, this reflects a continued healthy level of demand, buoyed by the recent cash rate cut.
This is great news for people planning to sell soon, as increased demand will push up prices, at least in the short-term.
But what does it mean for property investors who are wondering whether to sell now or hold on and let the value of their property appreciate? One answer to this question can be found in the growing disparity between house prices and rental yield.
RP Data released figures in February revealing land prices in capital cities and regional areas had reached an all-time high.
At the same time, gross rental yield across Australia has dropped from 4.3 per cent to 3.7 per cent to the year ending February.
According to Core Logic RP Data head of research Tim Lawless, capital city home values rose at three times the rate of weekly rental prices.
So should the combination of these factors be ringing alarm bells for investors?
Time to sell
Oasis Property CEO Gavin McPherson says “absolutely yes”.
“This has been a largely investor-led recovery [in the property market], so when those investors wake up to something they should have realised – that they have an $800,000 property in Bondi Junction renting out for only $600 a week – there will be a correction.”
Mr McPherson says while he is an advocate of holding properties for the long-term, for investors planning to sell in Melbourne and Sydney, now is an excellent time to realise strong capital gains.
He also believes that in some areas of Melbourne and Sydney you’ll be able to pick up properties cheaper than they are now in less than five years.
“I’m absolutely concerned about prices falling. We are more at the mercy of global forces than we ever have been: the [US] Federal Reserve, China and any little thing that could rear its head.”
Watch the rental returns
Colliers International director of project marketing residential Curtis Field says he is seeing a trend of investors using the record low interest rates to draw on the equity of existing properties to buy more.
However, Mr Field, who manages mostly new stock, says clients are reconsidering underperforming assets.
“A lot are saying: ‘Is my property getting to the point where it is obsolete, will I get the rent I need and am I able to remain competitive with the new stock coming in?’
“Then they are asking, with the work that I need to put into the property to get the rent I need – is it worth it?”
National Property Buyers Victorian manager Antony Bucello has recommended clients sell properties in the past few months.
“There’s no use holding a property that hasn’t performed or doesn’t look like it will perform, we have recommended clients sell these in the past few months.”
Metropole Property Strategist director Michael Yardney agrees.
“If you have good properties, now is not the time to sell; it’s the time to hold and let time and compounding work their magic.
“If you have an underperforming property, now would be a good time to reevaluate.”
When to consider selling:
Poor performance: Is the investment property doing what you need it to for your portfolio? If not, Mr Yardney says the best time to sell is right now.
Rental returns: If your investment property’s rental return is falling it could be time to move on.
Too much maintenance: Mr Yardney says maintenance costs are part and parcel of owning investment properties and will add to returns. However, Mr Field believes if a property (or the apartment block) is costing too much, it could be time to pull the pin.
Anecdotal evidence: Mr McPherson says “if your taxi driver is telling you to buy a house, it’s time to get out”.
The bottom line: If you don’t need to sell, don’t, says Mr Bucello. But if you have an asset that hasn’t grown in line with its suburb over the past seven to 10 years, consider putting it on the market.