The Property Market is cyclical and while historically, each cycle takes roughly 10 years, this is not a firm rule.
To succeed in property investing, we have to look and asses the market drivers and conditions, and trawl through the extensive hype from marketers and “expert” commentators to get a more reliable perspective. There are many sources of data available to gather your research; however you will often find that each source delivers different figures. This is due to the different methodologies used to collate the raw data.
It is also important to understand what the data is reflecting and its relevance to your research.
Property can deliver three main investment outcomes.
• Capital growth: appreciation over time
• Yield: rental income
• Taxation benefits through depreciation and associated borrowing expenses.
Unfortunately it is not possible to get all three in abundance in one property. This is where it is important to understand what outcomes you are trying to achieve and structure your portfolio to deliver a balance.
Capital growth and rental increases are counter cyclical. While growth is accelerating, the rents generally tend to lag. Recently, the accelerated growth in many of our capital cities has resulted in fallen yields. This in itself is not sustainable over time, and once the growth cycle finishes the yield cycle begins as investors attempt to cover the gap in holding costs created through the growth cycle. This situation can take a lot longer if there is an oversupply of a particular product type in one area.
Interest rates, which are at historical lows, also have a significant impact on this scenario. This is actually protecting the rental market to some extent in some markets, particularly in some oversupplied product type.
There is an oversupply of units in many of our capital cities, and with high numbers in the pipeline yet to come to the market, the full impact has not yet been felt.
To be successful as a property investor, it is wise to look at the fundamental trends across several markets and pick your timing to capitalise on the current market conditions. This may mean not buying in the area you live. When purchasing a new investment property it is advantageous to start off in a market that delivers a good yield from the start. Five per cent is a realistic target.
The “scarcity factor” is also important to be mindful of in selecting what to buy as purchasing in a development that is marketed primarily to investors does not put you in the strongest position when it comes to finding a tenant and negotiating a good rent. When it comes to selling you face the same issue and reduce your competitive advantage.
It is wise to consider the holding costs of the property before you purchase. These will include such things as land tax, rates, body corporate fees and other levies. The efficiency of how your money works for you is maximised by limiting these costs as much as possible, balanced against the capital growth prospects of the property.