Investors are well and truly leading the charge in Sydney’s market recovery, with the percentage of people buying for investment in NSW recently crossing the 50% line.
Australia’s largest mortgage broker, AFG says 53.4% of new borrowers in January were buying for investment. That’s the highest level of investment activity they’ve ever recorded and it speaks volumes as to the strength we’re going to see in the market this Autumn, as investors are always very active at the start of a recovery.
By comparison, this activity in other states such as Queensland, Victoria and Western Australia averages out at about 35%, which is solid but nothing like the frenzy going on in NSW.
Meanwhile, first home buyer activity in NSW is extremely low. In fact, it’s absolutely rock bottom at just 3.4% when the long term average is about 15%. But could some of our missing first home buyers have moved over to the investor box?
It’s pretty well known that a big proportion of Gen Y’s have a strong preference for lifestyle and want to live close to the city and beaches. This has spurned a new group of young buyers who are bypassing the traditional route of buying a cheap home on the outskirts and instead are looking to buy an affordable investment property while they remain at home with mum and dad or rent some place close to the action.
A recent ME Bank survey seems to back this up. Their national survey of 1,500 households found 25% of Gen Ys were saving for their first home, while a significant chunk – 15%, were saving to buy an investment property.
As the stats show, there’s still a lot of youngsters wanting that traditional first home, they’re just too busy saving right now to buy. Those that are out in the market are often seen inspecting properties with mum and dad, who are either going guarantor on the loan, or kicking in some money for the purchase, or actually buying for investment themselves, with a view to renting to their child.
It’s interesting to see market forces at work. Yes, Sydney is an expensive market but when there’s a will there’s a way, and young buyers are certainly getting creative in managing the affordability issue.
Anyway, back to investors. Given there’s so much investor activity happening in NSW and a good level occurring elsewhere, I thought I’d share 10 tips for people buying investment properties this Autumn.
Top Ten Tips for Buying Investment Property this Autumn
- Buy what owner occupiers want to buy. Australia has about a 70% owner occupation rate, so owner occupiers create the lion’s share of demand. Demand equals price growth
- Focus on capital growth first and yield second
- Avoid cookie-cutter properties on busy roads in inferior locations. Run from any property marketed by developers directly to investors
- Go for properties with a good layout and lots of light – a north or north-east aspect is ideal
- Aim to hold for the long term using generous tax incentives such as negative gearing and depreciation to help you pay for it
- Know exactly how much you can afford, build in a buffer and assume a few extra costs in the first few years
- Inspect at least 10 properties before you buy. Even if the first one seems perfect, make sure you see enough to really know the market and recognise a good buy
- I recommend buying properties you can drive past, maybe not in the suburb you live in, but another one you’re familiar with that’s reasonably close by
- Choose properties that are walking distance to cafes, shops and city transport. Pick established suburbs and choose nice streets with well-maintained homes
- Buy a house if you can but don’t consider apartments the poorer choice. Houses have historically achieved better capital gains but the gap is closing! Avoid houses requiring renovations beyond 5% of the purchase price. Avoid apartments in oversupplied areas and steer clear of company title and high strata levies
Finally, people say you shouldn’t buy an investment with emotion. That’s true to some extent – you need to make sure the numbers stack up first and foremost; but I say it’s important to buy a property that excites you. Look for a property with some great features in a great location. Those are the properties that will truly deliver the best rewards.