For many young investors, the property markets in Sydney and Melbourne have become unaffordable. Owning a home, or investing in property at a young age, is unattainable.
But this doesn’t have to be the case. It’s just a matter of analysing the markets around Australia, and investing your money interstate.
What is property doing in Australia in 2016?
When it comes to Sydney and Melbourne, you’re generally looking at $900,000 to get your foot in the door…. In Brisbane, you’re looking at half of that!
The Australian property market is diverse. What is happening in one capital city will not be the same as the others. The last few years have shown how much this is true.
“Obviously, when it comes to the major cities, some of them are going to grow more than others. In 2015 we saw Sydney and Melbourne rocket to really great heights. Some would say to really unaffordable heights,” Dr Diaswati Mardiasmo, National Research Manager at PRDnationwide, explains. “Whereas the other capital cities, like Adelaide, Brisbane, Hobart and Perth, they are now starting on the journey to that high growth.”
When it comes to Sydney and Melbourne, you’re generally looking at $900,000 to get your foot in the door. This is especially true in Sydney, where it’s become unaffordable to purchase within Sydney itself. For most Gen Y’s, the option is to look in the outskirts, or go into a major amount of debt. In Melbourne, while there is a bit of wiggle room in the inner-city suburbs, it’s still quite tight.
According to Mardiasmo, while Sydney and Melbourne skyrocketed last year, the other capital cities didn’t. “In Brisbane, you’re looking at half of that [$900,000 starting price], and the same with Adelaide and Hobart. You could get inner-city apartments and houses with a $400,000-500,000 price tag,” she says.
What’s happening in Brisbane?
If you asked the experts where they would be investing this year, most would say Brisbane.
The recent survey by the Property Investment Professionals of Australia found that out of more than 1,000 investors surveyed, almost two thirds are actively looking to buy residential property in the next year. For most, Brisbane was seen as a much more affordable option to Sydney and Melbourne.
And the interest in the Brisbane market already reflects this. “The year has kicked off on a very solid footing with plenty of buyers at open homes and auction attendances on the rise,” Steve Worrad, General Manager of Raine & Horne Queensland says. “Likewise, online activity is strong too with interstate investors very interested in Brisbane’s affordability and growth outlook.” Worrad believes that while it does come down to the fact that the Brisbane market is more affordable, the tumbling stock market has had a significant impact on people wanting to invest in property rather than other investments. “Investors are getting increasingly cranky with equities and are rebalancing into the safety of bricks and mortar. Low interest rates will also help underpin Brisbane values over the next few years.”
According to Angie Zigomanis, Senior Manager – Residential Property at BIS Shrapnel, while Brisbane will face some economic headwinds due to the end of the mining boom, there are some positives starting to emerge. “Interstate migration is starting to turn, and while the numbers are still pretty low, there are positive signs,” he explains. “The vacancy rates are still relatively tight so that’s also positive. Plus, the low dollar is creating a strong pick-up in tourism across Australia, with Brisbane being a beneficiary, not just from overseas but also from more Australians travelling locally. The low dollar also means we’ve got stronger growth coming through in overseas education and overseas students coming in.” BIS Shrapnel forecasts a mid-single digit growth per annum for Brisbane.
Why invest in Brisbane?
At this point in the cycle you’re getting more bang for your buck in Brisbane
Zigomanis says. “You can buy a house within five kilometres of the CBD and that’s still affordable in Brisbane, relative to somewhere like Melbourne and Sydney. It potentially might offer more upside down the track because it hasn’t had the growth that the inner suburbs of Sydney and Melbourne have over the last two or three years. On that basis, you’re probably getting a better rental yield out of that as well.”
According to Mardiasmo, a big plus of investing in Brisbane is the amount of land. And this means continual growth. “If there is going to be more commercial projects in the area and more infrastructure, that’s going to bring in more jobs and more income into the area, so there will be more people needing homes. And because there are going to be more jobs, it’s going to increase people’s purchasing ability and therefore, your place will be worth more in the future.”
Importantly, investing in Brisbane also means you may not need to reach into your pocket as much to cover your mortgage, due to low interest rates and high rental yields.
For young investors, Worrad also says it’s the perfect place to get your foot in the door. “Affordability and generous yields are Brisbane real estate’s big attraction. It’s a great place to live and work. Brisbane has a great climate, excellent schools and the access to Asia is very good. These fundamentals will underpin Brisbane real estate values and investment yields long-term,” he says. “For young interstate investors, it’s a simple strategy that involves buying an asset in Brisbane and enjoying the tax benefits associated with owning an investment property. They can then continue to work and rent in Sydney and Melbourne.”
What you need to know about Brisbane
“For just $480,000, it is still possible to buy an entry level three-bedroom weatherboard home in Carina and earn a rental yield of about 5%.”
When investing anywhere, location is key, and the closer to the CBD you are, the better. Failing that, look for options near key transport hubs. And remember who your tenants are likely to be. Your Gen Y counterparts are likely to be the ones renting it. Suburbs with a good transport option and an inviting café culture, or even an emerging one, will appeal to younger tenants.
Outside of the CBD, there are several suburbs to watch in 2016, including Banyo, Coopers Plains, Corinda, Durack, Indooroopilly, Kenmore and Carina. “Located just 10 kilometres to the east of Brisbane, Carina’s other major appeal is its real estate affordability,” Worrad says. “For just $480,000, it is still possible to buy an entry level three-bedroom weatherboard home in Carina and earn a rental yield of about 5%. An entry-level price like this is as rare as hen’s teeth in Brisbane, let alone Sydney and Melbourne. Carina achieved growth of 9% in 2015 and we expect the suburb to better this result in 2016.”
Do your research
As with any investment, you need to do your research. And don’t believe all the hype. “For someone who wants to break into the market, for someone like Gen Y, obviously affordability is the main thing, but at the same time a lot of people think ‘well I have to be in Sydney or Melbourne to be able to make my money’,”
Mardiasmo says “That’s not the case. Because if you look at the growth rate, or the rental yields, between each capital city, there are comparable percentage growth and rental yields in other capital cities, with a lower entry price.”
On top of this, with any property investment, you need to realise that you’re in it for the long haul.
While investing in Brisbane gets you into the market and allows you to rent and live in Sydney or Melbourne, you’re not necessarily going to see huge profits within the first year. Be patient and smart.
“Property investment is a long game, not a short game,” Zigomanis advises. “You probably need to sit on it for a while at the moment.”
When it doubt, always seek out advice.
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