The media has been in a frenzy with reports of escalating house prices and a lack of housing affordability. Couple this with banks tightening and changing lending policies and securing property is looking even harder.
This poses the question: is residential property still worth investing in? Or does the lack of affordability trickle through to investors too? Should investors forgo residential property, eat their smashed avocado on toast and dabble in the share market instead?
Residential investment is a long way from being dead in the water but gone are the days when snapping up an apartment off-the-plan is going to pave the way for the best returns.
Instead, investors should carefully reevaluate their goals, sharpen their pencils and look beyond the popular suburbs to work out where they will see the most growth and this will continue to be driven by new growth areas outside Australia’s major cities.
Some of the best prospects for stable income and sustainable capital growth can be found in regional cities such as Bendigo, Ballarat and Geelong in Victoria (or the equivalent cities in other States), thanks to improving infrastructure (express train to Melbourne) and population growth linked to increased employment opportunities.
Capital Growth and Returns
Despite escalating property prices, investing in “bricks and mortar” as a medium to long-term investment remains a sound strategy as according to the ASX Long Term Investors Report 2016 residential property is the most valuable asset with the highest average annual gross return of 8 per cent.
Property is also considered less volatile and more stable than other asset classes. And for many would-be owner-occupiers, investing before they buy their own property to live in can also represent a way to enter this tricky property market and build some equity before prices rise even further.
Strategic Growth Corridors
While some suburbs in inner-city pockets may not “stack up” well for investors in the current market climate there are still significant capital gains to be made by investing in growth corridors in regional areas, some mid-outer ring suburbs and interstate where house prices will rise significantly but steadily over time. Investors might also have plans to eventually live in their investment properties – they might desire a lifestyle change or a return to their ‘home town’ after establishing their careers in one of Australia’s major cities.
Regardless of the motivation, however, investors need to remain savvy and informed and continue to do their own research to identify where they feel the real hotspots are as these are the areas that will see the most growth over the medium to long-term. A good way to do this is to track where large developers are acquiring land – developers invest a lot of time and money to identify future trends, meaning they have already done of lot of the homework for you!
Infrastructure Projects a Growth Indicator
Infrastructure projects are another key driver of growth and once completed, these projects can add significant value to suburbs. Improved motorways and public transport options are making many mid-outer ring suburbs and regional cities more accessible and ‘liveable’.
Growth in infrastructure improves connectivity for commuters and new rail links are another major benefit as public transport always factors high on any tenant wish list.
Major infrastructure projects also create significant employment, with the working population wanting to live close by – which will create greater tenant demand for these emerging suburbs.