This article has been republished from the Your Investment Property digital magazine
While fast-rising interest rates and high prices had some investors running for the hills last year, all the ingredients needed to whip up the perfect storm for investors to tap back into the market are coming together.
With rate clouds starting to clear, as well as declining prices, high rents, tight vacancy rates and the return of migration, the market will have all the right essentials to bring back the strategic investor.
Property values are falling, down nationally by 8.9% from their April high, according to the latest CoreLogic data. National rental prices are still rising, however, jumping 10.2% over the last year. Since the start of the upswing in September 2020, rental values have lifted 22.2%, marking the largest rental incline on record. During this 27-month period, the median weekly rent valuation across Australian dwellings rose from $430 per week to $519.
The growth of rent values has outpaced purchase values on a monthly basis since February 2022, leading to an improvement in national gross rental yields of 57 basis points during this time period. Nationally, gross rental yields across all dwellings increased to 3.78% in the December quarter.
At the same time, the number of rental vacancies is at an all-time low, fuelling a landlord’s market.
PRD Chief Economist Dr Diaswati Mardiasmo said now is the time for investors to take up the opportunity of a lower entry price and climbing rents.
“Vacancy rates are still below the REIA’s healthy benchmark of 3.0% and lower than pre-COVID-19 levels,” Dr Mardiasmo told Your Investment Property magazine.
“Not only that, but we are also seeing most areas recording increased rental prices for the past 12 months whilst having an increased number of houses rented. The same pattern can be seen in most unit markets as well.
“Many of the investors that tapped out took out loans with previous interest rates [pre/RBA cash rate hikes], but new investors tapping in would be on the current interest rates.
“Thus there is a more realistic expectation of what the mortgage repayments would be, as opposed to trying to manage a month-by-month fluctuation that happened in the past nine months, which basically was what made the investment no longer financially viable.”
Demand is expected to continually grow in 2023, with international migration picking up again and a growing call for further increases to the migration intake to deal with the workforce shortages. Overseas migration is likely to place continued demand on rental markets with the 2022-23 migration program set to welcome 195,000 arrivals.
Julian Khursigara, Partner at Search Party Property echoed a similar sentiment, leaning in favour of 2023 being the year of the savvy investor.
“The unique set of circumstances we’re seeing this year may present a prime opportunity for those looking to invest in the property market,” Mr Khursigara told Your Investment Property magazine.
“Both Federal and State governments are buoyant with the estimates of new migrant arrivals in 2023.
“Super-tight vacancy rates along with the property price slowdown may open a good buying window in certain suburbs.”
The areas to consider if you’re looking to invest
Mr Khursigara said investors should take into account their personal circumstances and goals before locking in a particular area they wish to invest in.
“Budget is very important as trying to buy in a city whereby you can only afford a small apartment may not be the best long-term investment,” Mr Khursigara said.
“The southern suburbs of Perth can be a good option for budgets under $500,000 while the Moreton Bay region of Brisbane is a favourable choice for budgets over $550,000. If your budget takes you closer to $1,000,000, then you can consider buying within the inner ring of the key cities.
“As interest rates rise, positive cash flow is difficult to achieve in suburbs closer to major cities. This is where buying in major regional towns or looking at strategies with dual or multiple streams of income are gaining popularity.”
Director of A1 Property Buyers Agency Fraol Reffu said those looking to invest in Queensland should keep an eye on suburbs in the Logan City Council.
“Savvy investors should consider investing in Logan City Council suburbs that offer easy access to convenient amenities such as public transportation, shopping centres, and the M1 highway connecting to Brisbane and the Gold Coast,” Mr Reffu told Your Investment Property magazine.
“With the recent $540 million renovation and expansion of the Logan Hospital, investing in the surrounding area may prove advantageous for those looking for affordable investment opportunities with strong yield components.”
Why some investors may sit on the sidelines in 2023
Despite the perfect storm brewing for investors, some may sit back and watch the market from afar this year.
According to Mr Reffu, the decision to invest, at the end of the day, comes down to your own personal situation as well as external factors. It truly depends on your finances, investment goals, budget, risk tolerance, and market conditions.
“Some investors may hold off this year due to the uncertainty of interest rate hikes and ultimately a reduction in borrowing power,” he said.
“The real estate market can also be quite unpredictable and subject to fluctuations, which can result in a loss of investment.
“Plus, the costs involved with owning a property such as maintenance, repairs, and taxes have increased over the last year or so likely putting some investors off from entering the market.”
However, while some investors may not move forward with a real estate purchase this year, Mr Khursigara believes the market is favourable for the well-researched investor.
“If you have conducted your research, prepared yourself financially and secured finance; the market is well-placed to offer good returns on well-considered investments,” he said.
“Buying in the ‘dip’ of the market is a good place to be before the market rallies again once the interest rate rises subside in the coming months.”
4 tips if you plan to dip back into the investment world
If you’re planning on hopping back on the investment bandwagon in 2023, here are 4 tips to keep in mind according to Dr Mardiasmo.
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Conduct localised, granular research: There are markets within markets within markets. Take some time to research the specific area and property type you are interested in. Do your own due diligence.
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Be aware of any future developments: Location chosen…tick, property chosen…tick. But have you considered whether there are any future commercial, industrial, or infrastructure projects on the cards? You want to have an investment property that will continuously be in demand and can earn you capital growth in the future.
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Be aware of potential increases in costs for the future: And not just interest rates. Ensuring there is contingency cash flow for at least 3-6 months can be beneficial.
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Involve the experts: A really good investment team, for example, chatting to a property manager, real estate research specialist, mortgage broker, and financial planner can really help formulate your investment strategy.
