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Hot market still available to investors

Aerial view of brick veneer houses in Melbourne
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Not all markets rise at the same rate, and strategies that work in some may not be successful elsewhere. Photo: Shutterstock

Hot market still available to investors

Prospective investors should not be fearful of being priced out of Australia’s rapidly rising property markets, with opportunities for investment success still available if buyers stick to proven strategies.

Never make a threat unless you are prepared to carry it out.

Good advice. And here is my translation for investors: Never invest in property unless you are willing and able to follow through with your investment strategy. Let me explain.

But first, what is your strategy?

Buy and rent the property out? Buy a property then sell it for a profit?

It’s not as simple as choosing one of these two, as there are numerous approaches to investing. You need to work out which type of investment strategy best fits your objectives, and behind whichever strategy you choose must be a solid plan.

Housing markets around Australia have continued to surge and property investors are loving the rapidly appreciating prices in an environment of record interest rate lows.

Not all property markets are the same, and they do not all rise at the same rate.

The Herron Todd White property clock shows us that almost every capital city is in the rising market phase of its cycle with the exception of Darwin in the start of recovery and Perth at the peak of the market. 

More so, the bulk of the regional centres around Australia are also in their rising phase. There is no shortage of data available to investors for both regional and major metropolitan markets.

What I’m seeing in my own network is that there is a marginal easing of market frenzy (FOMO). Listings haven’t dropped off and the volume of buyer activity is levelling. 

REA figures for April supported this, showing buyer enquiry down. But while this may be the case, segments of the market remain red hot.

A further observation is that some banks have begun to decrease interest rates for investors, indicating that they are willing to turn the tap on for the right clients.

So, what should all this mean to investors and what other factors should they be aware of?

To the ‘buy and sell for a profit’ investor, I say be aware of outside influences like getting hold of tradespeople and building materials. 

These and rising costs are a real factor if you bought with an expectation to renovate and flip. You might find you cannot do it in the timeframe you planned, which may make your strategy unfeasible.

There will still be price rises but will the buyers be competing to the same extent when your property is on the market? If you are buying to renovate then rent out, you could still be caught out on the cost and the length of time your ‘income earner’ is out of service.

Investors who can secure affordable property on decent size blocks in renter-attracting locations will be on a safe thing. 

A block with a low maintenance house in a good area is a key market, and this might mean looking 15 to 20 kilometers from the CBD.

If yours is a knock-over-and-build strategy, investigate the time frames. Because of the building hold-ups and other issues, project timelines are being pushed out dramatically.

Units and townhouses might be worth an investor’s research. There hasn’t been a massive rush on this sector yet but look at what happened post GFC. 

It is feasible that some markets, in Southeast Queensland for instance, might run the same course, and we are seeing early indications of this.

The sweet spot here might be existing stock, possibly that has been sitting on the market for a while. 

Often older-style apartments are larger and can potentially offer better yields.

There’s always the debate around houses or units as a better investment. 

The land aspect favours houses, and they tend to deliver better capital growth long-term. Although you have to factor in ongoing fees with units, the buy-in cost is generally less. I say ‘generally’ though because be it house or unit, location will dictate the entry price.

Everyone is fighting over land at the moment, which could make it a very good time to look at other options. A case of ‘zig’ while everyone else is ‘zagging’!

Rising prices are almost a worldwide phenomenon. Impacting markets are low interest rates, employment, rebounding industries, especially tourism and hospitality, the roll out of the vaccine and the eventual opening up of overseas immigration.

All of these things are generally on track in Australia and the outlook for the economic market, including property, is encouraging.

Regardless of the strategy undertaken, every investor must look to the fundamentals of affordability, yield, return and resale.

Investors should not be fearful. The market, while rising, offers opportunity. If the economy continues to recover, that should give investors the confidence to make their move.

In saying that, plan your investment strategy, then remain determined, intentional and on course.

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