This year investors will face growing competition to buy quality investment grade properties. There is no doubt prices in the $350k – $800k will have the strongest growth of any market segment. With interest rates low, share market erratic and many people finding it difficult to rent houses, this year will see very strong growth as investors and first home buyers look for the safety of bricks and mortar.
Interest rates are more likely to fall than rise. I know many people were talked into fixing rates last year on the back of a potential rise by the Reserve Bank. But this was only talked up by bank employees, rather than the broader based economists. With the bias tending towards a fall even the most risk averse investor can see that bricks and mortar will be a safe bet for some time to come. And there are many types of investment opportunities in the market place.
Retirees looking for steady income may find that a high yield low growth property may suit their needs. There are areas of Melbourne that have a traditional 6% – 7% capital growth rate but also have a gross yield touching 5%. These could fit in very nicely for cash flow upon retirement. There are also the more traditional areas that will offer a long term growth closer to 8 – 9% and still yield 3.5 – 4.5%. And there is also those properties that you can value add to increase your equity and allow for a growing portfolio.
With interest rates at all-time lows and the bias for going lower, there is also the revenue neutral property. There are now plenty of options for borrowing money and outlaying little or nothing at all depending on your tax bracket, and having a rental property that will average growth around 7%p.a. over time. These properties are relatively new, have little maintenance and offer good tax deductibility with depreciation.
And the growth will come from the investors themselves. It is like a self-fulfilling prophecy. The more investors that come in to the market, the more competition is created and the more the price of these properties goes up. The more the price goes up, the more capital growth and the more likely it is for more investors to enter the market place.
With world commodity prices going down, oil prices halving and businesses struggling to hold their value, the stock market may be an extremely daunting prospect for investors this year. If you are considering an investment property or a home to live in you need assistance in order to not make mistakes. If you buy the wrong property it can cost you up to 10% of your purchase price to change it. This means if you are buying a $500,000 property and you make an error in your choice (not the negotiation) you could lose up to $50,000 in order to sell it and buy a better one.
Seek advice from a professional buyers’ agents. This season on The Block, Channel 9 are bringing in three buyers agents with Melbourne property market experience to rate the contestants work. Channel 9’s The Block would most likely want to see a better finish to the auction results than they did for half the contestants on the last season. The Block starts tonight on Channel 9.
If you are thinking about a home to live in or investing in property, please give us a call to have a chat. It will take you an hour of your time that may well save you tens of thousands of dollars.
Ian James
Director
JPP Buyer Advocates
