Zigomanis believes the time might be right for anti-cyclical investors to re-enter the market. “The lower-end of the market [meaning mostly up to around $500,000] is still the most attractive – with Sydney, Melbourne and Adelaide having the most potential.”
One of the attractions for property buyers is that interest rates are at long-time lows.
And Zigomanis does not expect a marked increase in rates any time soon. “The Reserve Bank and the Federal Government will want interest rates to remain as low as possible to drive the economic growth,” he says. “The strength of the housing market is important to lead the economy out of the doldrums.”
However, Christopher ominously adds: “We have just seen the Commonwealth Bank lift variable and fixed interest rates – this could signal an upward movement in rates.”
While yields on rental properties are at their highest for 20 years, Christopher suggests would-be investors compare the higher yields on such alternative investments such as fully franked shares.
There are significant areas where vacancies are rising,” warns Christopher. In such areas, it is next to impossible for landlords to obtain higher rents.
“By default, this will reduce the number of borrowers [in the lower-end of the market],” Christopher says. In turn, this could be detrimental for prices.
While Bright believes higher loan-to-valuation ratios will prevent a large percentage of first homebuyers entering the market, it would strengthen the property market because there would be fewer forced sales.
The reduction of the caps on these contributions, which include salary-sacrificed, SG and tax-deductible contributions by the self-employed, is expected by some financial planners to encourage more investors to gear non-superannuation investments including residential property.
Bright is convinced that the best buys for investors are currently above the first homebuyer points. In Sydney, for instance, this means properties from $750,000 upwards, and in particular in the $1 million-$2 million bracket (which, of course, is much higher than the traditional sector favoured by small investors.)
In general terms, Bright says this means quality properties near transport, shopping centres, restaurants, entertainment centres – and employment centres, particularly in busier cities.
“Other factors such as a secure building, pleasant outlook and a balcony are highly desirable,” he says, “while off-street parking can be a deal-maker or breaker, particularly in the very busy suburbs close to the city centres.”
And stay away from areas where there is an over-supply of rental properties – unless buying something really special like a penthouse with knockout views.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
