Sam Khalil’s property investment outlook - Spring 2018

Spring is usually a buoyant time in the property sector, with plentiful new listings coming onto the market for owner occupiers to pick and choose from. Despite a spate of negative headlines, there’s no reason not to think it will be the same for investors – at least in some Australian markets. While those headlines focus on the cooling markets in Sydney and Melbourne, it’s important to realise that there is no single property market in Australia and opportunities abound elsewhere.

Take advantage of low interest rates

Interest rates continue to remain at historic lows, and look to stay that way for some time. Fundamentally, the Reserve Bank of Australia uses changes to the cash rate to either stimulate growth or prevent inflation and, for the foreseeable future, it has no reason to push either way.

If you have a stable income, take full advantage of this low rate environment to pay down your mortgage and invest while there is nothing to fear in terms of a dramatic rise in interest rates.

Look to regional cities

The massive price growth in Sydney and Melbourne over the past five years is having a knock-on effect on second-tier cities in regional areas. Intrastate and interstate migration is at a peak in the Eastern States as long-term home owners in Sydney and Melbourne cash up by selling their home and moving to lifestyle locations, such as Brisbane, the Gold Coast and the Sunshine Coast in Queensland, where housing is considerably less costly and there are also job opportunities. Technology is also enabling this increasing migration as more people are able to work remotely.

Canny investors should follow their lead and look at investing in second-tier cities with multiple industries, population growth and lifestyle advantages. Many of these smaller cities are becoming increasingly sophisticated, with excellent cafes, restaurants and cultural amenities, so a move from a capital city is not a massive cultural change.

An example is the city of Newcastle and the Hunter region of New South Wales where there is plenty of employment opportunities, investment in aerospace and other industries, good educational institutions and great lifestyle advantages. This area ticks all the boxes and offers a very good value equation in terms of property prices.

Also, many regional centres such as Byron Bay in NSW and the Sunshine Coast in Queensland are attracting professionals from the capital cities and some savvy regional towns are branding themselves as places of excellence in particular types of food production and selling products to the world. All these factors bode well for future capital growth in these regional centres, while current property prices in many are still extremely affordable.

In the Capital Cities

With capital city markets cooling, the fear of missing out is gone and investors are in a better position to take their time, take advantage of more choice and negotiate on price. Rents are subdued, but with banks having slowed their lending to developers there’s likely to be an undersupply of rental properties in about six month’s time and pricing tension will come back.

While the Sydney and Melbourne markets are in a lull, investors can still find the right stock, but be forensic and be wary of the new apartment market.

The benefits of duplexes, dual key and dual occupancy properties

One way investors can gain advantage in a stagnant market is to profit from dual income properties. By purchasing, or creating, two dwellings on one block you can get funds from the bank at around 4% and achieve returns of around 5.5+% from the two rental incomes. Even with subdued capital growth in the near future, you are still ahead of the game.

Developing a duplex property, i.e. two separately titled dwellings on a subdivided block, means you are manufacturing equity and gaining an immediate uplift in value, without relying on normal market forces.

Even with the uncertainty created by an upcoming Federal Election and the restrictions of banks capping their lending to investors, wise investors can take advantage of the current low interest rate environment and fresh opportunities of a cooling market to find the right properties that will be great investments.