Focus on Property in Australia

An Australian property bubble has been avoided, prices have peaked so is it still possible to profit from investment property?

Some who bought investment properties or new homes in Eastern Australia in the last eighteen to twenty four months have been unimpressed with the performance of their real estate assets – in certain areas of the country prices peaked a couple of years ago and they have been lying dormant or even dwindling ever since, and it’s likely that such property owners are wondering whether they have made a significant mistake with their purchase choices.

However property in Australia is not only a good long term investment choice with historical data highlighting the fact that property assets held for the long term can provide an owner with strong capital growth, there are certain factors that mean even in a deflated market environment such as the one being experienced in many Australian states today there is still the potential to profit from property.

The key is to be very selective about what you buy and in which areas of the country you buy - expert investors always cite the fact that amateur investors and anyone hoping to profit in a negative part of the property market cycle would do best to purchase well located residential property in the most affluent cities and towns.  And this advice holds for Australia today.

Naturally affordability constraints limit all of us when it comes to selecting property stock – but if you are unsure of what you’re getting yourself into or you’re aware that the market environment is shaky, if you do your price due diligence on a given home and ensure that it is not overpriced for the area, and you ensure you’re entering a residential area that is especially popular locally in a town or city where there are jobs and the infrastructure isn’t crumbling, and you’re prepared to hold your property for the long term then you will have made the very best decision possible.

In 2007 there are a number of additional and significant factors to suggest that by carefully selecting property assets in Australia an investor will be able to profit even if there is no major positive shake up in property prices. 

The first positive point is that experts do not foresee further interest rate rises, in fact some are even suggesting that there will be a drop in the rate of interest by the Reserve Bank of Australia later in the year.  This will improve local affordability, increase the likelihood of a resurgence of local demand, and it will make home loans far more affordable.

The second significant factor to take into account is that the economy in Australia is doing quite nicely thank you!  The budget is in surplus, unemployment is low, GDP growth figures are positive and there is potential for consumer demand to increase in 2007 for all sorts of commodities including property.

Thirdly a struggling property market has led to fewer developers starting new projects, fewer investors bringing new rental stock to the market and as a result Australia is witnessing record low vacancy rates – i.e., demand for rental property is outstripping supply and this is having a good effect on rental rates for investors with the amount by which they were able to increase rates almost touching 10% in 2006.  This situation will continue for the short term meaning a short term decent income can potentially be derived from Australian real estate assets bought for long term capital appreciation – meaning a ‘best of both worlds’ situation can be achieved with careful property selection.

And finally there are a whole host of population related factors affecting the property market positively from an investor’s point of view in Australia at the moment – the levels of inward migration are strong and set to increase, regional migration for employment is on the increase, individuals are living longer, more of us are living alone and all of these factors drive demand for more housing which creates an environment in which an investor can profit.

In conclusion this article sought to demonstrate that even in a property market witnessing stagnation and some negative correction like Australia’s is at the moment, with informed and intelligent buying decisions one can profit from short term rental rate increases and long term capital appreciation.