In an uncertain market, it’s important to take a long view of rental investments, two industry insiders in the buyers’ agency field have advised.
BuyersBuyers chief executive Doron Peleg and co-founder Pete Wargent have told their clients to look at 10-year returns and outcomes, rather than what might or might not happen over the next six months.
Mr Peleg highlighted some of the reasons why investors shouldn’t be scared off by current concerns around instability, but instead perhaps realign their approach to their next purchase.
“In the short term, there is always going to be some uncertainty. But with the unemployment rate at the lowest level in nearly 50 years and likely to fall further, national rental vacancy rates at extremely low levels of around 1 per cent, and population growth like to power back up to at least 350,000 per annum, there will be strong opportunities to generate excellent investment outcomes over the coming decade,” Mr Peleg said.
Mr Wargent added that keeping a keen eye on where prices were declining could also pay off for buyers looking to start or add to an investment portfolio.
“Over the past few months, prices have eased in the most expensive quartile of the market, largely accounted for by properties in Sydney and Melbourne,” he noted.
“Properties which sell via auction campaigns tend to be repriced more quickly as they sell under the hammer, and higher risk-free returns tend to imply that the higher-priced and lower-yielding assets will see the most significant declines. Speculative and the more illiquid assets can also be hit by higher bond yields.”
Lower-priced regional markets, he noted, had yet to see much of a drop in prices, and he said that ongoing construction issues had added to the woes of anyone looking to buy new or off the plan.
“The residential construction sector is struggling with capacity constraints and delays and is feeling the significant impacts of higher land, materials, and labour prices,” Mr Wargent said.
But he added that for those with the capital who are prepared to endure the wait, investing in a new build may not be a bad idea.
“Overall, property investors should be focussing on land-locked ‘missing middle’ of the market, where supply will struggle to keep pace with demand over the next decade and where housing rents are rising by 10 to 20 per cent this year alone,” Mr Wargent said.
Market uncertainty will have other impacts for investors who are looking to buy but hesitating at the moment, the duo also advised.
“Adverse headlines will probably see vendors become more reticent to list properties as the year rolls on,” Mr Wargent said.
For the short term, however, they are seeing “more choice and less competition this year for investors ready to strike, with many choosing on property assets with gross rental yields of 3.5 per cent to 4.5 per cent”.