A Buyers Market…..
Subsequent interest rate rises, the US downturn in the property market and uncertainty in the longevity of the mining boom has resulted in a buyers property market across Australia. The hot Australian property market has now cooled to an autumns day and is on the verge of slipping into a cold winter. For sellers this is not great but for buyers this posses a great opportunity particularly in investment properties in capital cities.
For a long time the return on investment properties across Australia has only be 2% to 4% (excluding capital gains) which compared to the return of a bank deposit account of 5%+ it isn’t that great. The reason for this hasn’t been that rental levels in Australia are low, as these have been rising steadily for the past ten years. Rather, it is because property values in Australia have increased ridiculously over the past ten years, much greater than rental incomes.
In the current environment we have seen property prices drop (excluding top end suburbs) between 20% to 40% since around 2004. At the same time the population has increased and Australia is on the verge of a rental crisis and low rental vacancies have forced up rental prices across Australia. This has been most profound in inner city locations across the capital cities in Australia. There is an overwhelming demand from people who want to live close to the CBD and with limited new release residential land being available means demand far outweighs the supply of houses in these areas.
This means that the ROI from these properties is no longer 2% to 4% but rather more like above 6% and greater room for capital gains.
Lets look at an example of purchasing a new apartment in Alexandria in Sydney:
2004 – Cost $500,000 & rental income $400pw = Return on Investment 4.16% per year
2008 – Cost $450,000 & rental income $550pw = Return on Investment 6.36% per year
This ROI is much greater now because property values have decreased and rental prices have increased. If you look at Capital Gains projections you can probably expect the value to rise by $50,000 by 2010.
What does this mean? If you are looking for a solid investment then the Australia property market currently has and will have many future opportunities. Fringe suburb and CBD suburbs in all capital cities along with property located along Australia’s coastline should provide the best ROI.
Comments
If only I had a spare $500,000 laying around.
There is a lot of talk at the moment about capital cities experiencing record low vacancy rates. This is great for investors but lets picture the poor renters who are going to be even more poorer. There is no way our economy can sustain this, something has to give.
Unfortunately, i think the “dream of owning a home” is going to slip away as many of these renters will never be able to save for a deposit if rents keep increasing.
Micky
22.06.08
9:05 pm
Yeah my rent has increased 10% each year for the past 3 years. I was lucky considering the rental crisis at the moment but I think because it has increased steadily over this time period it is not too far off market value.
I can’t see myself being able to afford a property close to the city (not in this lifetime anyway), prices are just too high and as you pointed out (Micky) rent in around cities in just too much.
The government really needs to get involved and come up with a better solution for first home owners. Why couldn’t the reserve bank provide cheaper loans to first home owners. Alternatively, the Federal govnt. could give greater tax deductions for money used to save for a deposit.
I am sure there are a number of different options which can be explored but all we need is a govnt. that will.
T-Bone
24.06.08
7:16 am
Both of your comments are interesting. There is certainly a rental crisis but I am skeptical as whether it is as bad as what the media makes it out to be.
If you look where a lot of the reports about the rental crisis generate from they include real estate agents, real estate portals, and real estate institutes. Notice the trend? They all come from the real estate sector who rely on income generated through property sales.
In a time when sales are down why not talk up the record low rental vacancies so people are encouraged to invest money in buying property. If there is such a rental crisis then why are still properties available for rent in these areas which are meant to have zero vacancies?
Rodney Munch
25.06.08
8:28 pm
Ryan here from Vode Property.
We often perform market appraisals and do not get the listing. There are numerous reasons including the vendor is not ready to sell, the other agent specialises in that area or they felt more comfortable with another agent. This is usual for all agents and although we would like to list all properties we provide a proposal for, we expect that vendors will and can go somewhere else.
Rhino
30.06.08
8:50 pm