With residential property prices around the country on the rise, some real-estate investors are wondering if they have missed the boat.
“I have been considering investing in a unit for about 12 months,” writes Kate, “but I thought prices would fall significantly due to the global economic crisis, and they didn’t.
Then I expected prices would ease when government grants to first-home buyers dropped, but that does not seem to be happening either. Should I wait until the next cycle?”
Well, with Australia’s population tipped to be heading towards 35 million, and a shortage of new accommodation being built, the pressure on residential property prices is likely to continue for quite a while.
Of course there will be dips in some markets from time to time but, as Kate has shown, if you try to time the very bottom of markets it’s likely you will never invest.
Conditions are ripe for a sustained recovery in residential property prices, economic forecaster BIS Shrapnel says in its Residential Property Prospects, 2009-2012 report.
“Low interest rates, solid growth in rents and housing shortages evident in most markets” are the factors that will drive prices, the report says.
And although interest rates are on the rise, they are still very low. Indeed, leading property commentator Monique Wakelin says that interest rate rises will widen opportunities for investors to get into prime residential markets.
First-home buyers have dominated the market but rising interest rates and falling grants will curtail their activity.
Rising interest rates are not nearly as big a problem for investors, Wakelin says.
This is because, for an investor, the interest on borrowings is a tax-deductible expense, which is not the case with a home buyer. Investors on the top marginal tax rate only have to wear about half the increase in mortgage payments arising from interest rate hikes.
The apartment sector in inner cities has already benefited from rising prices, Wakelin says, but she predicts prices will grow further.
She particularly likes Melbourne’s bayside suburbs.
Two things investors must guard against are over-leveraging themselves by borrowing too much and buying second-rate properties, Wakelin warns.
“Investors can short-change themselves by going for the $400,000 unit in the secondary location, rather than paying $500,000 for the prime spot. The difference in capital gains between the two can be as much as half for the lesser property.
“Buy the best you can afford, even if that means accepting less accommodation – say two bedrooms instead of three – for your money.”
Negatively geared real-estate investments are also expected to become more attractive to high-income earners who have had the amount they can tax-effectively contribute to superannuation drastically reduced. This will increase competition for suitable properties, which will also help to underpin prices.
Your article really hit right on the mark. wonderful work, I look forward to your next information.
Hi, great article, and cheers for taking the time and effort. One thing, I think your images are missing? Or is it my web browser?
Thanks. This is no image for this post. It is just the theme I use. I think I need to put up a common image for all the posts.
I am a residential property investor myself and have been fairly agressive over the past two years.
I am now finding it tougher to get finance at the moment, however all the indicators are right to drive property prices through the roof and I believe this could come from the average Joe with only one or two properties. With prices in many areas of Sydney going up in value by 10% to 20% in the past 12 months, these people have plenty of spare equity and once they are made aware, usually by media hype, that they can make good money out of property we will see more price hikes. There are many people who have a strong balance sheet and the banks are lending to them. Once property prices increase by another 10% to 20% investors will also have useable equity and I am seeing that this is when the majority of property investors are likely to come forward – in a big way.
Excellent read, I just passed this onto a colleague who was doing a little research on that. And he actually bought me lunch because I found it for him smile So let me rephrase that: Thanks for lunch!
I found your blog very informative. thank you terribly much!
Just a quick comment to thx you for your useful post. Do u know where I can find more on the subject? x
Happy to have found your Blog, i have a couple of questions if that ok,
1)Our investment property is being built now ,should be complete before the end of June, we can claim tax rebates on this for 2009/2010 tax year can’t we
2)The titles of the house and morgage are in joint names of my husband and myself. We will have to spilt 50/50 the income and the expences of the house. I will have to put in a tax return for the 1st time ,as i do not have an income to pay tax on i will have a loss. Will we be better off in the longrun as the rental income will be spilt with my husband
1) I think you can – but please check with your accountant.
2) If you don’t have an income & it is a negative gearing property, I think for the longrun, you shouldn’t split the rental etc with your husband. If it is a positive cash flow property, split with your husband is a good idea.