Year of the investor investment

 

Author: Pam Walkley, Editor-in-Chief Money magazine

Year of the investor investment

2010 is shaping up to be the year of the investor in residential real estate markets.
Last year historically low interest rates and increased government incentives for first home buyers meant that group dominated the home buying market.

But by year’s end interest rates were on the rise, the incentives had been cut and investors were starting to take an interest. And why not?

Last year Australia’s residential property markets defied gravity, with values growing by an average of 11.3% over the 11 months to November 30, leading researcher RP Data said. The ill-informed commentators who predicted a collapse in prices of up to 40% had egg on their faces.
In December investors took out a third of all residential mortgages, mortgage broker Australian Finance Group found.

Investor activity staged a bit of a resurgence last year, says Cameron Kusher, senior researcher with RP Data. “But conditions will be better this year with not as much competition from first home buyers. Investors love to do a deal and they will have better chances of that this year. They will be rubbing their hands together just thinking about it.”

After the very strong price rises in 2009, most commentators expect more subdued single-digit growth across most markets this year. Melbourne and Darwin were the stars in 2009, chalking up price increases of 17% and 17.9% respectively in the 11 months to November.

Sydney and Brisbane will be the better performers this year, Kusher predicts. “Melbourne will be in the middle and Perth and Adelaide will experience lower levels of growth. Darwin also has to slow down soon – it’s been running for 24 months – but yields are still strong there for houses and units.”

The other good news for investors this year is that rentals are expected to rise and yields to firm. A fall-off in the number of people buying their first home will build pressure in the rental market, Kusher says. “Rental yields and rentals have weakened for the past six months, but this is now set to turn around.”

A severe physical shortage of housing, combined with far lower than expected unemployment growth in the global economic downturn, is also underpinning and driving house prices in Australia.

Strong population growth means we need about 200,000 new homes a year, housing industry experts say, but we are building fewer than 130,000.

That does not mean investors can go out and buy any old property and expect it to perform well. Indeed, deciding what and where to buy is a difficult decision for many people.

You need to approach buying an investment with a totally different mindset to buying a family home. Your personal taste in style and location are not important in an investment property.
What is vital is that you buy a property that will provide a reliable, and preferably growing, income stream.

Neat, clean and tidy properties near major centres of work, or on good transport routes to these centres, with nearby facilities such as schools, parks, shops and entertainment usually make the best investments.

Units can be good investments because usually they are less expensive, and therefore accessible to more people, and neither the tenant nor the landlord needs to worry about maintaining a garden.

Indeed units dominate a list of top capital city investment picks for 2010 from RP Data. This is because they tend to enjoy better overall yields than houses, says Kusher. (See table Capital Picks for a taste of these. The full list is in the February edition of Money magazine.)
Regional areas singled out by RP Data are within major centres which are supported by reasonably strong economies, he says. (See table Regional Picks for a taste of these).

Capital City Unit Picks

Suburb		Price	10-yr grth	rent	yield
Griffith, ACT		$345,000	8.6%	$400	6.0%
Erskineville, NSW		$413,000	5.6%	$493	6.2%
Parap, NT		$295,000	10.1%	$360	6.3%
Windsor, QLD		$335,000	10.8%	$340	5.3%
Glenelg, SA		$352,500	19.8%	$410	6.0%
West Hobart, TAS		$284,000	11.6%	$310	5.7%
St Kilda West, VIC		$337,500	9.1%	$345	5.3%
Burswood, WA		$307,500	13.5%	$330	5.6%
Regional Picks
Jesmond, NSW	U	$215,500	10.4%	$250	6.0%
South Mackay, QLD	U	$252,500	12.6%	$320	6.6%
Whyalla Stuart, SA	H	$240,000	13.2%	$280	6.1%
Queenstown, TAS	H	$83,000	19.3%	$130	8.1%
Moe, VIC	H	$127,500	10.1%	$165	6.7%
South Hedland, WA	H	$495,000	23.4%	$1100	11.6%

Source: RP Data
Price is median price
10 year growth is average annual growth
Rent is weekly median advertised rent
Yield is indicative gross rental yield
U = unit
H = house

  Top of page  Other articles