By John McGrath, Property Expert
www.mcgrath.com.au
RESCU’s real estate guru, John McGrath, explains why buying in the second half of 2009 is one of the smartest moves investors can make. So, if you’re looking to invest, don’t miss out on this golden opportunity…
Beneath the flurry of first home buyers is a major resurgence of investor activity in property. We haven’t seen them for several years as the mining boom temporarily kidnapped their focus. Now they’re back. Australia’s property market is welcoming a new breed of investor – savvy, informed and wiser from recent lessons learned. They’ve re-jigged their finances, liquidated assets and now they’re ready to sow new seeds for steady financial gains. It’s happening right now. Property is definitely the hot new “must have” item and I sense the real rush will be on next year.
Here’s the state of play:
Last year, as the GFC hit hard, property was virtually the only asset class delivering strong, positive yields. It was this rental cash flow that helped many investors out of the woods. So today, as they look to the future, property is firmly in the centre of their sights.
Demand for investment property is about to intensify. This time last year, my company was selling around 10% of properties to investors. Now it’s more like 25%. I was recently speaking with a financial institution that handles a lot of mortgagee sales and they told me that 60% of recent sales were to investors outbidding owner occupiers. In addition, RP Data has just reported that loans to investors increased by 18% nationwide between February and May alone.
Demand is not only coming from locals either. Interest from overseas, particularly Asia, has intensified with Australia seen as a relative safe haven compared to other major developed markets like the U.S and U.K.
Want to beat the rush?
If you’re among the many investors waiting for the First Home Owners’ Boost (FHOB) to expire on December 31, you could be missing a golden opportunity. Buying in the second half of 2009 is one of the smartest moves investors can make – here’s why:
- Investors tend to go for the same properties as first home buyers – apartments and houses under $500,000. Buy now and you’ll be competing against the young ones. Buy next year and you’ll be competing against fellow investors. Who would you rather bid against – budget-conscious first timers or cashed-up investors?
- Worried about a price bubble under $500,000? Demand is not the issue – it’s a lack of quality stock that’s really pushing up the prices. We’ve got a lack of stock because many existing landlords see no reason to sell. Yields are high, vacancies are low – they’re happy as they’ve ever been. But Spring is here so more stock is expected on the market – hence more buying opportunities. And don’t forget, the FHOB halves in value on October 1 and this will dilute demand.
The first rule of thumb when buying investment property is to keep capital growth your Number One goal. Rental yields are important, but should be a secondary consideration. We’re already seeing signs that rents have peaked with a 34% increase over the last three years – all the more reason to focus on suburbs with strong histories of capital growth. Those that are close to cafes, transport, beaches and parklands are a good barometer.
Here are my top tips for buying an investment property:
- Don’t buy property you can’t drive past
- Buy above the suburb’s median price
- Buy within 10 km of the CBD or coastline
- Focus on capital growth over rental yield
- Take a minimum five-year view
- Assemble a small team of quality advisors
For more expert opinions, click here to read John’s earlier blog on Buying Investment Property.
For more information and advice, please visit www.mcgrath.com.au
