As the heady days of ‘flipping’ properties for profit wind down, investors now need to think far more carefully about how and where to invest their money when venturing into the property investment market.
While some news reports are gloomy about the market, other experts argue that what we are seeing is a necessary correction to soaring prices that saw house prices more than double in Sydney since 2005.
Property panic – remember to take a reality check
Newspaper reports have been predicting an imminent house price crash for some time now. But others, who have worked in the industry for decades, say that what we are seeing at present is a return to a more normal market and we are more likely to experience a ‘soft landing’ than a deep drop in prices.
The OECD (Organisation for Cooperation and Economic Development) predicts rising employment and economic growth, both of which are good news for Australian investors. However, it also anticipates interest rate rises, which you should factor in if you are going to borrow against an investment property.
Core Logic data states that in Parramatta, house prices rose by 12.4% in 2017, before falling by 6.6% in 2018 – still an overall increase of 5.8%. This year, they are predicted to fall by a further 2.7% before rising again in 2020 by 6.2%.
And for units, the picture is similar: A rise of 4.6% in 2017, followed by a fall of 4.2% in 2017 and a further fall of 0.9% this year, followed by a rise of 8.9% in 2020. Hardly a crash.
Parramatta remains an area with great potential and appeal. Increasingly, people will choose to live and work in cities, not rural areas, and as a growing city Parramatta will continue to draw new people looking to rent or buy here. With the fundamentals of good and growing infrastructure in place, Parramatta’s future looks promising.
Quality versus quantity
Different approaches will suit different people when it comes to buying an investment property, but it always pays to look at the quality of your purchase – while a cheap apartment may seem like a great investment, you don’t want to be hit with unexpected maintenance costs, or find you have a property that isn’t sought after by tenants.
As a general rule, location and layout are two things you can’t change – everything else can be upgraded over time.
Buying a smaller number of high-end apartments may appear to be a safer option, and the success of this strategy will come down to doing your research so you know exactly what kinds of tenants are looking to live in the area, as well as what you are getting for your money.
Generally, proximity to public transport and other amenities has more intrinsic value than an apartment filled with luxury fixtures and fittings, which will eventually need to be replaced, so look at where your money is going. What you want to know is that your property will always attract good tenants, and generally this means the closer you are to good infrastructure, the better.
What is clear is that the market is favouring buyers at the moment. While this won’t last forever, if you are looking for an investment property, now is a great time to start looking as there is plenty of choice on the market and you should be able to find something in a price range and location that you feel comfortable with. As always, doing your research and talking to as many people as possible will help you make the right investment decision.
Think about your investment strategy
While searching for your dream home to live in is based on how you feel about a house as well as its location, layout and so on, an investment property is different. You need to think strategically, and keep your emotions out of it to some extent.
Examining upcoming infrastructure plans, considering demographics, seeking good information and understanding the local market will all help you weigh up an investment property.
The local council and local news reports are both good starting points for finding out where an area is going, economically, and what upcoming development activity may boost the appeal of the area. You can also think about what kinds of tenants you can expect, and how much demand there will be – university students, hospital or government workers, for example.
Think about what it will be like to live there for your tenants, as happy tenants will stay for longer. Here are some items to consider:
- Security – how safe is the area and would someone living alone feel secure there?
- Access to public transport and other amenities such as supermarkets, gyms, parks, cafes.
- What fittings do you have – a washing machine and air-conditioner are appealing, as is a dishwasher in larger apartments.
- Is there secure off-street parking for tenants and visitors?
- Does it have a good street presence and would tenants feel happy to live there?
And think about capital growth and how the area may change over time. New public transport announcements may send an area’s growth into an upswing, but in some cases the real growth happens well before the new infrastructure is built, and sometime after it has become established.
Parramatta is an exciting long-term prospect for investors thanks largely to its growing infrastructure and population. An additional 2.5 million people are expected to move to the greater Sydney area by 2046, with western Sydney expected to absorb much of the growth. This means that urban planners and developers are now looking to unroll new infrastructure – schools, public transport, healthcare – to meet future needs.
Stage one of the new Parramatta light rail will connect Westmead to Carlingford via the Parramatta CBD and Camellia, increasing the area’s accessibility greatly with trains expected to run every seven minutes in peak times. And the new Western Sydney Stadium in Parramatta is expected to provide up to 900 new jobs once it opens. All of this is great news for investors.
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Now more than ever, it’s worth focusing on long-term growth prospects rather than betting on quick profits. Buyers who are willing to jump into the current market, while the more cautious are holding back, are likely to find wider choice and motivated sellers more willing to negotiate than a year or two ago. While the soaring property values may not be there right now, a savvy investment property purchase can still offer good returns – it’s all about being realistic and strategic.
We are always happy to talk to clients about their investment goals – please give us a call today!