Property looks good from here
SUNDAY TELEGRAPH | SUNDAY 15 MARCH 2009
Paul Clitheroe
OKAY, your super has taken a flogging and your shares may have tanked, but for the first time in many years I reckon now is a good time to invest in property.
Prices have dropped, interest rates are low and rents are up and while I’m not expecting a boom any time soon, if you choose the right property in the right location, the long-term growth prospects are good.
I know many people will shudder at the thought of borrowing in a debt crisis.
Sure, if your job’s looking a bit shaky, you’d be wise to build a buffer of savings rather than sign up for a new mortgage, but if your job is reasonably secure, there are compelling reasons to consider an investment property.
The real-estate market is in the doldrums and it always makes sense to buy an asset when prices are depressed.
Figures from the Real Estate Institute of Australia show the average three bedroom home in Sydney now costs around $529,000, which is about 3.5 per cent less than you would have paid a year ago.
Median unit prices have also fallen, down 2.7 per cent over the last year to $360,000.
To give you an idea of the sort of value this translates to, Kent Lardner from Price Finder (formerly PDS Live), cites the example of North Epping, where average house prices are currently around $625,000 — down from $715,000 12 months ago.
This suburb enjoys excellent proximity to the M2, the North Ryde business precinct and Macquarie Uni — all of which signal positive growth prospects.
It’s the same story in areas such as Forestville in northern Sydney. Lardner says the suburb currently has a median house price of about $ 793,000 compared with $856,000 this time last year.
Long-term, though, it has healthy growth potential given its location just 13km from North Sydney.
Units are often a popular bet with investors, but prices have dropped in some areas to a point where it can make more sense to buy a house, which is likely to give better long-term capital gains.
In Newtown, for example, Lardner says house prices have dropped around $37,000 over the past 12 months.
The median price is currently $620,000, but canny buyers can pick up a house there for the sort of money some inner city units sell for.
While prices have fallen, Sydney rents have been creeping up, rising by as much as 17.8 per cent in 2008.
Meanwhile,vacancy Sydney’s rate is a tiny 1.2 per cent, meaning less chance of lengthy periods between leases and better odds of securing a quality tenant.
Not surprisingly, one agent from the Raine & Horne network says 70 per cent of apartments in an Ashfield block were recently snapped up by investors.
First-home buyers are fuelling sales of properties priced below $500,000.
Up to this price, first-time buyers get a full stamp duty exemption and between now and June 30, the First Home Owner Grant has been beefed up from $7000 to $14,000 for those buying an existing home, or $21,000 for those who build a new home.
In parts of the inner west, agents report the proportion of buyer enquiries coming from first-home buyers is as high as 80 per cent.
But for many investors, rent return — or yield — is the big draw card because this is a certainty, unlike capital growth.
For strong yields, it can be hard to go past western Sydney. In Liverpool, Raine & Horne reckons a house worth $280,000 can rent for $300 to $320 per week. That’s a yield of almost six per cent.
Apparently it’s the same story with units. Some selling for below $200,000 can rent for around $240 a week.
I’m not suggesting that we’re on the verge of a new property boom, but whether you’re buying as a first-timer or as an investor, it’s a no-brainer to buy quality while the price is low — as long as you have a long-term view of, say, seven to 10 years.
Paul's tips
- House prices in some good Sydney suburbs are down by around $60,000, so there are bargains to be had.
- Despite sluggish prices, rents have increased by up to 17.8% and the vacancy rate is just 1.2%. In parts of western Sydney rental yields are as high as 6%
- Expect plenty of competition in the under-$500,000 price bracket. First-home buyers are taking advantage of the beefed up FHOG to snap up bargains in this price range.
- With a long-term view and sensible use of debt, it’s a no-brainer to buy a quality property when prices are cheap and interest rates are low.
