John McGrath – How to find the best investment property
It’s clear that investors are back in the market in force. CoreLogic says residential investor activity nationally has increased from 22.9% of new loans at its lowest point during the pandemic to 32.6% today.
Investors are looking to capitalise on rebounding rental demand and apartment price growth, in particular, as migrants flow back into the country.
Remember, apartment prices didn’t appreciate as much as houses across Australia during the COVID-19 boom. This was because the market was dominated by upgraders purchasing houses, and we had no migrants or international students coming in seeking apartments as their first homes here.
REA Economist Eleanor Creagh says rental demand is already increasing on realestate.com.au and enquiries from investors to agents are “at the highest level seen in more than three years”.
Also playing a role in current investor demand is the ‘safe haven’ reputation of bricks and mortar.
Global share markets have been volatile in 2022 due to rising bond rates and fears that both inflation and interest rates will rise faster than expected. The war in Ukraine gave share markets a further shock, so property is really standing out as the best and safest option for investors.
Apartments are a common choice for investors due to their comparative affordability and typically higher rental yields. They’re also lower maintenance because you’ve got a strata company taking care of the building.
Over the past two years, we’ve seen astounding rates of price growth for houses but apartment prices have grown by about half as much. So, investors are seeing comparative value.
Take a look at the data from CoreLogic. In 2021, house prices in Sydney grew by 29.6% compared to apartments at 15.1%. In Melbourne, it was houses 17.9% vs apartments 8.7%. In Brisbane, it was houses 30.4% vs apartments 12.7%. In Canberra, it was houses 27.2% vs apartments 16.8%.
So, if you’re looking to buy an investment property, here are my tips to help you find the right one.
My top tips for buying an investment property
My overarching recommendation is to buy for capital growth. The factor that drives property price growth is demand, and one of the biggest influences on demand in the property market is location.
Good locations will always be in demand, so you should always buy the best location you can afford. In my view, the key factors that identify a superior location are as follows:
- Walking distance to cafes – cafes, rather than pubs, are now our preferred spaces for meeting friends and discussing the important issues of the day
- Walking distance to shops – not necessarily major supermarkets, but retail villages enabling residents to buy the necessities close to home
- Walking distance to transport – ensure the commute to work is as easy as possible
- Beaches and waterways – Australians have a longstanding love affair with the ocean. If you can afford to buy in a beach suburb, try to buy as close to the sand as possible
- Job hubs – although many of us now work from home, capital city CBDs and major suburban commercial centres, such as Parramatta in Sydney, are likely to remain major job centres. Buying within close proximity of the hubs themselves, or transport to them, is a smart idea
- Aspect – this is a very important part of capital growth. In Australia, people pay a premium for a northerly orientation of the main living, family and garden areas
- Pleasant environment – neighbourhoods with established trees, leafy streets and parks are always popular with tenants
- Buy a house, if you can – the big upside of houses is that their value typically grows faster than apartments, but the gap is closing. My advice is to buy a good house if you can afford to, otherwise buy the best apartment you can
Looking at the Australian market as a whole, I think the best opportunities for property investors are in South-East Queensland. There’s more affordability, and a population surge is underway with the prevalence of remote working allowing thousands of Sydney and Melbourne families to relocate there.
Rental yields for both houses and apartments in Brisbane and regional Queensland are also better than in Sydney, Melbourne and the NSW and Victorian regions simply due to better affordability.
Plus, the lead-up to the Brisbane Olympics in 2032 will bring more new infrastructure and jobs to South-East Queensland, providing a further boost to home values due to improved local facilities.