Residential property investment has slide out of favour for a lot of reasons, but investment property is making a comeback as interest rate drops and rising rents make the figures stack up.
Major house and land developers say that inquiries from investors have risen after recent interest rate drops.
Whilst some property investors have never left the industry, many sold out recently when the Howard Government put lucrative super deals on the table. However these deals have turned sour with the collapse of many blue collar investment values and now many want to return to the safety of property.
On paper developers believe that the investment environment is more conducive today than at any time since 2002.
The main factors are plain to see: lower interest rates that are heading lower for years to come, rising rents, a shortage of rental properties and the recent collapse of the share market.
Rental vacancies have fallen below 2 per cent in capital cities, the lowest level in history.
Stephen Wilkinson, research officer with the Real Institute of Australia, said the average vacancy in capital cities was hovering around 1.7 per cent.
The interest rate gap is closing in favour of new home investment
The industry says the gap between the cost of money and rental income has closed to about 1.5-2 per cent. So even when negative gearing has lost its gloss due the reduced taxes in recent years, it is starting to look good.
Mr Hickey said investors looked for capital growth or yields, but could live with higher yield in the absence of capital gains. This has been the case in property investment in outlying areas for years and has given many investors massive windfall capital growth in the last few years as well.
Investors are looking at new home rental again.
Investors had turned away from shares and cash investment, Mr Griffins said, and they saw value in residential investment, especially in Melbourne, which was seeing the strongest population growth in the country. “Melbourne attracts between 12,000-15,000 people each week,” he said.
Cashflow positive investments make more sense in a flat-lining property market
Investors are coming back because of higher yields. The average return is at least 5 per cent a year now compared with 3.5% a couple of years ago. Research has found that residential investment in more suburbs was becoming cash flow positive. This is however still not the case with new property. New homes investment makes sense with warranties and no maintenance costs for the next few years and new homes attract more rent returns and less vacancy rates.
Buying Property as an investment for Self Managed Superannuation Funds
Many people buying property as an investment in recent times had been people managing their own superannuation funds. This will be a growing trend.
“But people should be look at keeping the investment for five to 10 years. Property is not something that you turn around in a few months.”
The reality is that new home property has always been a no-brainer investment for the average Australian.
