From timing and size to location and style, our experts share their insights to help you launch back into property investment after a challenging year.
Despite the challenges of COVID-19, property price growth and yields across Australia have remained strong, while interest rates have stayed extremely low – creating an enticing market for investors.
In fact, as we move from the uncertainty of 2020 and with some of the COVID-19 government first-home buyer incentives such as HomeBuilder finishing, investor activity is heating up.
On realestate.com.au, investor email enquiries about properties increased nationally in April 2021 compared to April 2020, up 84.2% year-on-year. Of these, enquiries for units were up 69%, houses 92% and land 111 %.
In line with this interest, March 2021 Australian Bureau of Statistics (ABS) data revealed 54.3% year-on-year growth for investor home loans, with a recent jump of 12.7% from February to March 2021.
Whether you’re an experienced or first-time investor, there are likely to be many questions on your mind. Here are some expert insights to help you out.
1. Is now a good time to buy?
The right time to buy an investment property is always “yesterday”, explains Kesree Jones, General Manager Sales Programs at Frasers Property Australia.
Currently, Jones says there have been strong rental yields around the country, with the exception of Melbourne, meaning that there is a chance to find the winning combination of strong yield and capital growth potential.
Investors should weigh up both yield and capital growth
Looking ahead, Jones says there could be a tightening of new stock, as a number of development decisions were paused during the pandemic and construction costs went up.
“Supply is looming as an issue in some markets,” she says. “At Frasers, we are two-and-a-half-years ahead of where we thought we would be in terms of selling.”
2. Has rent been falling and how does this affect my investment strategy?
Some inner-city areas near higher-education facilities, particularly in Melbourne, have seen some rent price reductions following COVID-19, with international students leaving Australia.
However, this doesn’t tell the full story, says Paul Ryan, economist at REA Group.
“Rental demand for units has held up the best over the past year, falling only four per cent,” Ryan says.
“While rental demand remains 18% below the peak recorded in January this year, the level of demand remains much higher than it was prior to the pandemic. This is surprising given that foreign students – traditionally a strong source of rental demand in inner-cities – remain unable to enter the country.”
Rental demand has shown resilience
Ryan says this could present opportunities for investors who may be able to secure an apartment at a good price ahead of rental demand returning.
“For investors, there’s a point at which they can see the light at the end of the tunnel and immigration will be back,” Ryan says.
Jones adds that in some areas with strong rental demand, there might be significant potential for rental increases, as Covid-19-related moratoriums on rent rises and evictions may have delayed rent rises during 2020.
3. What properties are in demand from renters?
Lifestyle-oriented properties have picked up interest following lockdowns, including those outside of CBD areas, Jones explains.
“Our Burwood (Melbourne) properties have done well in terms of rental, because people are now moving out of their smaller rentals and into developments that have got green space, community and lifestyle,” she says.
Jones adds that renters are also more interested in properties with a great sense of community.
“People now want to know their neighbours,” she says, particularly if they’re spending more time working and studying from home.
Ryan points out that another shift due to COVID-19 has been people wanting more bedrooms for a home office. This trend was particularly noticeable in Melbourne, which experienced greater interest in larger homes during the lockdown period in 2020.
Melbourne’s lockdown led to greater interest in larger properties
However, this trend is split between metropolitan and regional areas.
“We’re seeing on realestate.com.au that people in capital cities are searching for larger houses than they were in the past,” Ryan says.
“Searches for three or four bedrooms are more common, with searches for three-plus bedrooms increasing to 67.1% of searches in April, compared to 64.1% a year ago” he says.
However, in regional areas, searches for three-bed-plus homes decreased from 74.1% a year ago to 72.5% in 2021.
People want more bedrooms in capital cities but that’s not necessarily the case in regional areas
Ryan suggests this differential is most likely attributable to growing investor interest in holiday homes or investment properties in regional areas, while smaller apartments in capital cities have been seen as less desirable.
4. What markets should I be looking at?
Rental demand across Australia is continuing its comfortable performance from late 2020, according to search activity on realestate.com.au. So, there are plenty of places to consider for investment.
Ryan says that regional areas such as the Central Coast, Blue Mountains and Wollongong in NSW, and the Mornington Peninsula and Geelong in Melbourne, have recently caught renters’ attention.
“They are places where commuting to the CBD every day is arduous, but commuting one or two days a week is easy,” he says.
When choosing where to buy an investment property, Jones says the key is to look at three fundamental things – population, infrastructure and employment – or ‘PIE’.
“Ask, if I were to rent, could I live there?” she says. “Then you know it’s the right property. That might mean it’s a little bit bigger, it might be a bit more expensive, but it’s going to be easier to sell. It’s got to be a little bit unique.”
Getting amongst the action is also a great way to get a real sense of what the property will be like.
“Speak to people who live in the community about what it’s like to live there, to be more informed about the type of place that a tenant is going to want to live in,” says Jones.
5. Should I look at buying old or new?
For investors weighing up buying an older versus new property, Ryan says there are always trade-offs.
“Older dwellings tend to have more maintenance costs, whereby you pay a premium for new and investors can claim tax on depreciation,” he says.
Jones says other benefits of new properties include warranties and the latest in amenities such as private dining rooms, gyms, pools, libraries, shops, cafes and concierges.
“New is also a far more attractive proposition for tenants,” she says. “And that’s what’s important to an investor.”
All pictures are courtesy of Frasers Property Australia.