If you’re looking to invest in real estate, commercial properties present plenty of opportunities. However, you need to consider the risks and market drivers. This commercial property investment guide will help you.
You must think about more than the property investment basics when investing in commercial real estate. There are many complex market issues at work, which means you take on more risk.
Understanding these issues will play a role in the success of your investment in real estate. Commercial properties come in all shapes and sizes, which you must account for. This commercial property guide will equip you with the tools you need to succeed.
The Market Drivers
Several drivers affect the state of the commercial real estate market. You must understand what these drivers are before you can invest successfully. They include the following:
- The strength of the economy. A weak economy means there are fewer businesses available to lease your property. Keep an eye on the data. For example, transport sector growth indicates that an economy is getting stronger.
- Infrastructural improvements influence businesses’ decisions. For example, the building of new roads usually results in an influx of companies to an area. Buy your commercial property with future developments in mind.
- The Reserve Bank of Australia’s (RBA) interest rates have an effect. If interest rates are on the rise, you’ll find less success with your commercial property. The cost of money increases. This places your potential tenants under greater financial strain. Conversely, low interest rates lead to more demand.
- Population growth in certain regions will affect your decisions in real estate. Commercial properties do well in areas with large populations. This is because the demand for services increases, which leads to an influx of businesses into the area.
- You should also consider population demographics. For example, areas with a lot of retirees will have more need for medical services. However, areas with lots of children need more family-oriented services. Use population demographics to find out about the types of businesses that will express an interest in your property.
There are also several risk factors to consider when you invest in commercial property. Here are some of the most important:
- Commercial properties tend to stand vacant for longer than residential properties. You will have to handle the costs of the property during such periods. As a result, it’s usually best to tie commercial tenants to long-term leases.
- New property construction always presents a risk to your investment. Your tenants may decide to explore their options, which could lead to vacancies. It’s the issue of supply and demand. The more supply, the harder it is to find tenants. You also won’t be able to charge your tenants as much when there are other options available.
- Size is an issue. Large commercial plots cost a lot more to maintain, and are only suitable for certain types of business. Smaller plots may be cheaper, but they also have their limits. You must consider the local demand for services before deciding on the size of your commercial investment.
- Infrastructural improvements in other areas represent risks for your established commercial properties. Your tenants may make the move to the new area, which means you lose out. As a general rule, try to invest in properties that are close to central business districts (CBDs).
A poorly-constructed lease could lead to the failure of your commercial investment. These are the factors to consider when creating your leases:
- Commercial leases can extend from three years up to 10. The longer the lease, the less risk of vacancy. However, a bad tenant on a long-term lease could cost you. Offer the option to renew if you’re confident in the tenant’s ability to make on-time payments.
- Link your rent increases to the Consumer Price Index (CPI).
- You may require council approval for some types of business. For example, chemical treatment plants need to have the correct documentation.
- Insert a condition that compels the tenants to revert the property to its original condition upon leaving. This will make it easier for you to rent the property out again when you current tenant departs.
What Else Should You Consider?
Further to this, you need to arrange proper financing for your purchase. Many residential lenders can’t help you with commercial properties. As a result, you may have to locate a specialty lender. Furthermore, you may not be able to borrow more than 70% of the property’s value.
You’ll also deal with a commercial agent, rather than a real estate agent. These professionals specialise in attracting the right businesses to your property. They’ll also help you to create attractive deals for potential tenants.
The Final Word
As you can see, commercial investment is a complex subject. This commercial property guide will equip you with the tools you need to succeed.
The team at Washington Brown can also help you to claim depreciation on your commercial property. Contact us today to speak to a Quantity Surveyor.
You Could Bag a Great Investment Property in Australia at Auction
Trying to buy an investment property in Australia at an auction is something of a mixed bag. On one hand, you have the chance to snap up a bargain. A lot of sellers use auctions as their last resort. As a result, they may ask for less than the value of their property. As long as you don’t get caught up in the heat of the moment, you may get a great investment property in Australia at auction.
However, you also have to consider the other possibility. Auctions are emotional places. If you get caught up in a bidding war, you could end up spending more than you intended. That makes it much more difficult to generate a good return on your investment property in Australia.
So how do you get the most out of your visit to a property auction? We have a few tips that should help you.
Tip #1 – Prepare Your Finances
Did you know that you have to pay the deposit for any properties you win on the same day as the auction? There’s no cooling down period, which means you need to be prepared financially.
This means you need to prepare yourself financially for the auction. Firstly, make sure you have a budget, and enough cash available to pay the deposit relevant to that budget.
You also need to consider how you’ll buy the investment property in Australia. If you’re buying using a trust or self-managed superannuation fund (SMSF), you need to make sure it’s organised for the purchase.
Finally, lodge a home loan application and get it through to the pre-approval stage. This means the lender is confident that they’ll approve your loan, barring a couple of extra checks. Having pre-approval means you can feel more confident in your bidding. It also places you in a good position to negotiate if the property doesn’t meet its reserve price, and you’re the highest bidder. The seller will see that you’re serious about buying if you have pre-approval, which may help you pull the price down.
Tip #2 – Look the Part
Impressions play a bigger role than you might realise at an auction. There are going to be all sorts of people there, so you need to play to the crowd a little bit.
Make sure you look the part. Ideally, you should arrive in business wear, so you look like the investment professional that you are. Bring a small notebook to jot things down. You may not need to write anything important, but it’s a little thing that could make inexperienced bidders wary of you.
The key is that you need to look confident, so people think you’re an experienced auction-goer. If you look like you have money to burn, a lot of people will refuse to bid against you. This gives you a distinct advantage, so you may secure an investment property in Australia for less than it’s worth.
Tip #3 – Bid Early
Many people try to lodge late bids when buying an investment property in Australia at auction. This tactic seems to make sense. You wait until the last second before making your bid. You rattle the other bidder, which lends you an advantage.
That tactic can work, but it has some risks attached. If you leave it too late, you may miss your bid. The auctioneer will bang the gavel, and you’ve lost out on a great property.
It’s much safer to bid early. This puts you in the running straight away, plus the auctioneer will start paying attention to you. As a result, you may get a touch more time to make that last bid count. Furthermore, jumping straight in with a strong bid can unnerve your opposition. This can reduce the bidding pool, so you face less competition.
Tip #4 – Don’t be Afraid to Walk Away
Walking away from a property you want is one of the hardest things you may have to do. However, it’s sometimes necessary.
Remember that you have a budget, and that every property you buy has to offer a good return on your investment. The bidding may get heated, and there may be people who can top every bid you make. It happens. You just have to make sure to react in the right way.
Stay calm and walk away if it looks like you’re going to spend more than you’re comfortable with. This protects you financially and ensures you have more money left over for any other properties you may be interested in.
You can make a lot of great purchases at property auctions. However, you need to avoid getting caught up in the emotion of the event.
If you follow these tips, you’re sure to bag some bargains eventually.
On Friday 14th July, the Treasury Office released a draft bill regarding how depreciation deductions on a second-hand property can be claimed moving forward. They also invited interested parties to make submissions.
It’s complicated, to say the least, so I’ve tried to simplify this Bill and the key points. Here are my 9 Key Takeaways from the Legislation;
- If you acquire a second-hand residential property after May 10, 2017, which contains “previously used” depreciating assets, you will no longer be able to claim depreciation on those assets.
- Acquirers of brand new property will carry on claiming depreciation exactly the way they have done so to date. This is great news for the property industry and the way it should be.
We suspected this would be the case and I believe the property industry can collectively breathe a sigh of relief.
- The proposed changes only relate to residential property. Commercial, industrial, retail and other non-residential properties are not affected in the slightest.
- The building allowance or claims on the structure of the building has not changed at all. You will still need a Depreciation Schedule to calculate these deductions. This component typically represents approximately between 80 to 85 percent of the construction cost of a property.
- The proposed changes do not apply if you buy the property in a corporate tax entity, super fund (note Self-Managed Super Funds do not apply here) or a large unit trust.
This is interesting and I suspect a lot more people will start buying properties in company tax structures.
- If you engage a builder to build a house and it remains an investment property, you will still be able to claim depreciation on both the structure and the Plant and Equipment items.
- If you renovate a property that is being used as an investment, you will still be able to claim depreciation on it when you have finished the renovations.
- If you renovate a house, whilst living it in, then sell the property to an investor, the asset will be deemed to have been previously used and the new owner cannot claim depreciation.
- Perhaps the most interesting point: Whilst investors purchasing second-hand property can now no longer claim depreciation on the existing plant and equipment, they will have the benefit of paying less capital gains tax when they sell the property.
How? Well, in summary, what you would’ve been able to claim in depreciation under the previous legislation, now simply gets taken off the sale price in the event you sell the property in the future.
Here is an example of how this will work:
Peter buys a property in September 2017 for $600k, included within the property was $25k worth of previously used depreciating assets.
As they were previously used, Peter can’t claim depreciation on those items.
Peter sells the property in 2022 for $800k, which included $15k worth of those depreciation assets.
Peter can now claim a capital loss of $10k ($25k-$15k) for the portion that Peter has not claimed in depreciation.
SUMMARY OF THE PROPOSED CHANGES
In my view, the Draft Bill could’ve been a lot worse for both the property industry and the Quantity Surveying professions.
It will certainly address the integrity measure concern of stopping “refreshed” valuations of plant and equipment by property investors.
It may, however, create a two-tier property market in relation to New and Second-hand property.
You can see the ads now “Buy Brand New – We’ve Got The Depreciation Allowances”.
It will still be just as critical for all property investors to get a breakdown of the building allowance & plant and equipment values so you can:
- Claim the building allowance (where applicable) and
- Reduce the CGT payable when selling the property by deducting the unclaimed Plant and Equipment allowances.
The Quantity Surveying industry, just like the property development industry just breathed a huge sigh of relief.
I believe this integrity measure could’ve been better addressed and will be making a submission accordingly.
But it wasn’t a bad ‘first run’ by the Government!
P.S. If you purchased an investment property prior to The Budget, and it’s been an investment property the whole time, you are not affected and you should get a depreciation schedule quote now.
Over the summer break I was chatting to an acquaintance at a friend’s barbecue about – you guessed it – property. It’s sounds like a cliché, but it’s true.
This fellow was telling me about one of his investment properties in Brisbane. He was informed towards the end of last year that his long-term tenant was planning on vacating. So he was forced to go through the rigmarole of marketing the unit for rent.
The task was made even more daunting because he had the double whammy of the lease ending in December. Yes, exactly, who looks for a property around that time of year? And it was a unit in Brisbane’s oversupplied market.
That’s right – that’s two strikes in the competition stakes. So can you see why he was concerned!
After being on the rental market for a few weeks the tenant actually ended up staying after being offered a discounted rent (it’s a long story). While this bloke was disappointed he had to drop the rent. He knew he would have lost more money if the tenant left as the property likely would have been vacant for a period of time.
So, what’s my point? Well, this whole story got me thinking about when is the ideal time to market your property for rent?
When is tenant demand at its peak?
It turns out that tenant demand is at its highest at the beginning and middle of the year. So around January/February and then again around June/July/August.
These are the times of the year that most people are on the move and looking for accommodation.
At the beginning of the year there are plenty of students starting university. Families often move just before the school year starts to get into a certain catchment area. There are also people starting new jobs.
Tenants also tend to move around this time of year because this is often when their 12-month lease from the previous year ends. They might want a change of scenery, or might be forced to leave if the owner has increased the rent or wants to.
If people often start leases at the beginning of the year it follows that the next peak period in tenant demand is in the middle of the year, as those initial 6-month leases will be coming up for renewal, and a new university semester will also be starting.
Property managers report having up to five times the usual tenant inquiry during these peak rental times of the year.
Christmas and Easter are considered to be some of the worst times to try to rent your property since many people go on holidays.
Beware that tenant peak demand times may vary from market to market. So you should ask your property manager about when demand is highest in your area.
Time your leases to coincide with peak demand times – market your property on the right month
As we know, property is all about supply and demand, and you want the latter to outweigh the former.
As such, it makes sense that if your property is available for rent at the time when tenant demand is at its highest there’ll be more competition for the available supply and hence you’ll get the best return – or highest rent – possible. You’ll also minimise vacancies. And you will be able to choose from a selection of tenants, giving you the ability to be more particular.
If your leases end in the months outside those peak rental times you have a higher risk – especially in oversupplied areas such as the inner city unit markets of Melbourne and Brisbane – of having vacancy periods, which could cost you dearly. You may end up having to drop your rent or use other incentives to entice renters.
Indeed, the rental market as a whole is pretty competitive now. So it’s wise for any investor to be timing their lease to end at peak times.
You can ask your tenant to sign a longer – or shorter – lease than the regular 6 or 12 months to ensure they expire at the right time. If your lease ends in December, for example, make it a 13 or 14-month lease so it takes you to January or February.
If you have a good property manager they should be doing this for you anyway, but keep an eye on it yourself too.
Avoid any issues with tenant shortages
Any property investor should be aiming to buy a property that is in demand from tenants all year round. And if you do this successfully, you won’t have to really worry about when tenant demand is at its peak during the year.
How do you find such a property? You need to do your research and buy in a sought-after area, with plenty of infrastructure and amenities.
You then need to target a property type that’s in demand from the demographic in the area. If the area is dominated by families that will be a house, for instance. While if it’s single young professionals, it will likely be a unit.
You should also look for other features of the property to attract tenants. Such as extra bedrooms, bathrooms, air-conditioning or extra parking – whatever it is that the demographic in the area wants.
It’s also wise of course to avoid buying a property that’s oversupplied in the area. As this means you’ll be competing with lots of other homes of the same type, with the likelihood that your rent will be decreased and vacancies will be increased.
What property areas will shine in the Sunshine State this year?
WHEN it comes to property the past few years have been all about Sydney and Melbourne. Now it might finally be Queensland’s time to shine!
The state’s capital saw price growth last year of around 4%. This was moderate compared to the 11%-plus its southern counterparts clocked up. However, this year Brisbane tipped to be one of the strongest performing capitals.
The wider South East Queensland (SEQ) region is also expected to perform well. Particularly what’s dubbed as the ‘Golden Triangle’. This stretches from the Sunshine Coast in the north to the Gold Coast in the south, and out to Toowoomba in the west.
Affordability is one of the key attractions for SEQ. The latest CoreLogic RP Data figures show Brisbane’s median dwelling price is a huge 35% less than the most expensive capital of Sydney.
Yields in Brisbane are also a drawcard for investors. CoreLogic RP Data statistics found the gross rental yield for units is currently the equal highest with Darwin of all the capitals at 5.3%. For houses it’s sitting at 4.2%, around 1% higher than Sydney and Melbourne.
The slow and steady growth traditionally seen in the Sunshine State is predicted to continue this year. Already Brisbane is proving to be a standout performer, recording one of the strongest growth rates over February.
According to CoreLogic RP Data the capital’s median dwelling price rose by 1.8% over the month. Placing in third behind Adelaide (1.9%) and Hobart (2.9%).
There’s no doubt plenty of investors are turning their attention to Queensland. But where exactly should they be looking to buy? We’ve asked the experts to name their top picks.
Hotspotting.com.au founder Terry Ryder says this year the focus will move away from the two bigger cities of Sydney and Melbourne. 2016 will be the “year of smaller cities”, and in line with this he expects Brisbane to perform well.
Brisbane has been touted as the next city ‘due’ for growth for several years now. While some would argue that those predictions haven’t yet really come to fruition, Ryder says there has in fact been growth in the city’s property market.
“There hasn’t been across the board double-digit rises, but some precincts have had double-digit annual growth,” he elaborates.
Ryder says the city’s middle-ring suburbs are the ones investors should now consider. As growth will ripple out to those areas from the inner city.
Brisbane is buyers’ agent and CEO of www.propertybuyer.com.au Rich Harvey’s first pick when it comes to growth areas for 2016. He says the fundamentals are good, with affordability being one of the major drivers.
“The price isn’t the only reason to buy though,” he says. “Brisbane is in the earlier stages of the growth cycle and yields are around one per cent higher than other capital cities.”
Property lecturer and author Peter Koulizos also believes that of all the capital cities, Brisbane is one that will perform relatively well this year. He says the “relative” part is key. This is because the other capitals are unlikely to perform well, so even if Brisbane grows by around five per cent, it’s likely to be higher than Sydney.
Growth will be “steady as she goes” in Brisbane, according to Koulizos. He advises investors to stick to the fundamentals of buying close to the city.
Some of his standout suburbs are Kelvin Grove and Herston in the inner north – which are close to the Royal Brisbane Hospital and a campus of the Queensland University of Technology – and Woolloongabba in the inner south. Koulizos says investors should focus on buying character housing in those areas.
South East Queensland
Buyers should target areas in SEQ with growth drivers, says Ryder. Right now there’s momentum in several regions surrounding Brisbane including Logan, Moreton Bay and Ipswich, where there’s affordability, good infrastructure and plenty of job nodes.
He adds, however, that the biggest price growth in SEQ this year “will definitely be on the Gold Coast.”
The city, which will host the Commonwealth Games in 2018 and is expected to double its population to 1.2 million by 2050, has the greatest momentum with rising sales, but investors need to be aware of the risks.
In particular Ryder warns that the high-rise market is hurtling towards oversupply. He says it’s best for investors to therefore avoid this market. Instead stick to the coast’s residential areas situated inland, where there’ll be a better chance of long-term growth.
He adds that the suburbs in the Gold Coast’s northern corridor such as Coomera, Oxenford and Pimpama, are experiencing growth at the moment.
Logan is one of Harvey’s favourite SEQ regions at the moment. The area offers opportunities for not only capital growth, but good yields.
“You can buy a house in the $300,000 to $400,000 price range and get a six per cent return,” he says.
Koulizos, meanwhile, urges those investors considering buying in the growing regions around Brisbane to consider the demand/supply equation.
He says in many areas more homes are being built. This increase in supply will result in less pressure on housing prices.
Areas to avoid
It’s well known that there are areas around Australia where there’s a potential oversupply of apartments. The experts agree this applies to parts of inner Brisbane.
As such, investors are warned to be wary of buying off-the-plan apartments. Especially in suburbs such as West End and Fortitude Valley.
The experts also advise investors to stay away from areas in Queensland impacted by the downturn in the resources sector, such as Moranbah, Mackay and Gladstone.
While Ryder notes that Gladstone has been going backwards for a few years and has more to go before it bottoms out, he believes its long-term prospects are good, so investors shouldn’t shy away forever.
“When it does bottom out sharp investors will be buying, because it has a massive future,” he says.
Rather than reading media reports and buying in an area touted to be the next big thing, Harvey says investors should do their own research and get independent advice from professionals, who can help you formulate a strategy and get the best results.
They’re suave, they’re slick and above all, they’re convincing, with their sales pitch down pat. Who are they? Property spruikers.
Unfortunately in Australia’s largely unregulated property advisory market spruikers – masquerading as experts – can flourish and their unsuspecting victims stand to lose a lot of money.
How can you avoid being preyed upon? We’ve identified some of the telltale signs of a property scam so you know when to run in the other direction.
The (usually unsolicited) approach
This might come in the form of ‘special offer’ emails, cold calls from telemarketers or a letterbox drop. Or you might make the first contact yourself after seeing a seductive advertisement in a newspaper or magazine. Once they’ve got your contact details they’ll be persistent in their efforts to get you to sign up.
The spruiker will pull out all the clichés such as ‘offer of a lifetime’, ‘secrets’, ‘guaranteed growth’, ‘no money down’, ‘positively geared’, ‘get rich quick’ or ‘risk-free investment’. Many are unrealistic promises that a seasoned property investor can spot a mile away. But novice investors can be lured in.
Not all seminars are put on by spruikers, but this is a common way to target victims. You’ll receive an invitation to a free seminar, at which you’ll listen to a long spiel and be dazzled by a fancy presentation complete with glossy brochures, positive news story clippings, and detailed graphs and tables. Often they’ll either try and make you sign up for another – much more expensive – seminar or will book an appointment to talk to you one-on-one.
To earn your trust, the spruiker will be desperately trying to prove their credibility. They’ll have professional promotional materials, may associate themselves with reputable companies or charities, and will flaunt their own – whether genuine or not – success and wealth. They’ll try every trick in the book to get you to believe in them.
This is the absolute giveaway sign that you’re dealing with a property spruiker. They’ll make it so easy by doing everything for you. They’ll provide you with a conveyancer, valuer, mortgage broker, an accountant and even a property manager. While this might sound perfect for novice investors, what they’re really doing is ensuring the deal gets done by taking control of everything. All of the supposed ‘independent’ professionals are part of the scam. They will have you signing on the dotted line before you can reconsider.
The purchase will require you to borrow against an existing property so you don’t get a valuation on what they know to be an overpriced home.
They’ll want you to sign on the dotted line as soon as possible, often under the guise of a ‘time sensitive’ opportunity. This is just designed to get the deal done before you have time to wise up and change your mind.
If you hear the term ‘rental guarantee’, alarm bells should be ringing. It might sound like a safeguard for an investor, but if a property is in demand by tenants why would you need the rent guaranteed? Chances are when the guarantee is up you’ll have long vacancy periods or significantly reduced rental rates. Or the guarantee will go by the wayside once the deal is done, as it won’t be worth the paper it’s printed on.
The person or company offering you this opportunity purports to be the only one with access to it. They’re choosing to offer it to you, for a limited time only. They’ll try to convince you that they’re the only people who can find you the right property. In reality you’d likely find a much better deal yourself.
A property is offered, rather than a strategy
The first thing a genuine, professional property adviser will do is find out about your individual circumstances before giving you options as to where and what to buy. They’ll consider your budget, goals, and whether you’re looking for a property that will give you capital growth or rental returns. A spruiker, on the other hand, will have a particular property they want you to buy from a stocklist. And unlike most real estate transactions, there will be no room for negotiation.
The spiel about the opportunity will often focus on the tax breaks it provides. While this is certainly a benefit of investing it shouldn’t be the primary motivation for buying. The main reason to invest is to build wealth.
Often the opportunity will be for a house-and-land package, with the promise of a stamp duty saving and bigger tax breaks through depreciation. You’ll need to compare the cost of these new homes with established ones in the area to ensure you’re not overpaying. Although you most likely will be.
They’re marketing outside the local area
They’ll go interstate to spruik to investors, hoping buyers won’t be familiar with the location of the properties they’re selling. These homes will often be in outer suburbs and in low socio-economic areas that may not have great growth potential, despite promises that they’re the next big ‘hotspot’. Ask yourself: if the market is so strong, why wouldn’t the locals be buying?
If you’re approached by what you suspect is a spruiker, before giving out any personal information – and hard-earned money – ask lots of questions to find out who they really are and what their motivations are.
Are they formally qualified as an investment adviser and how and what are they being paid?
While the promise of a ‘get rich quick’ scheme can be tempting, it won’t live up to expectations. If it sounds to good to be true, it probably is!
Property is an excellent vehicle to build wealth. Make sure to keep in mind that it takes research and education to get it right. It won’t happen overnight. It takes time and patience to grow your nest egg.
The best way to invest is to do the homework yourself to find the right opportunities. You should have a team of trusted professionals, including a finance broker, solicitor and accountant, to give you independent advice.
Are there still growth areas in Australia’s two major capitals, Sydney and Melbourne? If so, where can they be found?
Sydney and Melbourne were the star performers of the property market last year. Recording significant growth in dwelling values of more than 11%.
In comparison many of the other capitals saw price declines, according to CoreLogic RP Data figures. With only a moderate increase of around 4% recorded for Brisbane and Canberra.
Experts have predicted the Sydney and Melbourne markets will cool this year, and indeed this seems to be the case, with dwelling values having grown by only around 2% over the first quarter.
These cities are still holding relatively strong however with only Hobart (6.5%), Darwin (2.4%) and Adelaide (2.4%) seeing greater growth so far.
Melbourne appears to have a slight edge over Sydney. With dwelling values rising by 2.2% this year and 9.8% over the past 12 months. Compared to 2% and 7.4% in the New South Wales’ capital.
Anecdotal reports suggest investors are now turning away from the major capitals. Looking for more affordable markets with not only cheaper housing but better rental yields than the 3% to 4% on offer in Sydney and Melbourne.
There clearly isn’t a great deal for investors to get excited about when it comes to these two cities. However, there are always growth areas to be found. We asked some of the experts to tell us where those might be.
The west dominates in Sydney
Since the property boom in Sydney has “run out of steam”, property lecturer and author Peter Koulizos says the key to investment success will be location selection.
“It’s not like last year where you could buy wherever you wanted to and make money,” he elaborates.
Koulizos’ top picks are the inner southwestern suburbs of Tempe, St Peters and Marrickville. Situated between five and seven kilometres from the CBD.
“They’re close to town, they have nice character homes that can be renovated to add further value and they’re close to the airport, which is a big hub of employment activity,” he says.
He adds that there are infrastructure projects in the area, which is fantastic for the local economy. And the suburbs have been experiencing gentrification.
Buyers’ agent and CEO of www.propertybuyer.com.au Rich Harvey believes the inner city will remain in demand in Sydney, and there’ll be capital growth in areas where demand is exceeding supply.
He also likes western Sydney, where he notes there’s strong demand in the right areas.
Harvey says a buyers’ agent on the ground can pinpoint exact locations for growth. He names some of the key areas as Parramatta in central western Sydney, as well as Liverpool and Bankstown. He also picks Campbelltown and Camden in the southwest and areas around Castle Hill in the northwest as good potential locations for investors.
There are several areas earmarked for higher density, Harvey says. These are typically connected with transport hubs, which will lead to growth.
Harvey adds there are several transport infrastructure projects in western Sydney that will drive growth by improving access to and from many of the suburbs. These projects include the North West Rail Link and the South West Rail Link. The NorthConnex tunnel linking the M1 Pacific Motorway at Wahroonga to the Hills M2 Motorway at West Pennant Hills, and the M5 East extension.
He adds that the construction of the Western Sydney Airport at Badgerys Creek will also provide a boost to surrounding suburbs.
Where to look in Melbourne
Not only has the Garden State’s capital performed better than Sydney this year. It was also recently revealed as having the fastest and largest population growth of all the capitals, with more than 1700 people arriving each week.
This should come as no surprise since it has been named the world’s most liveable city for the past five years running by The Economist.
Koulizos’ top picks for investors looking to buy in Melbourne are the inner-city suburbs of Flemington, Brunswick, Coburg and Footscray.
“Traditionally the inner city is where the majority of capital growth happens,” he says. “When a market is booming you can make money anywhere but when it’s not focus on being close to town.”
Koulizos says these suburbs have character housing, are well serviced by public transport and are being gentrified.
Harvey says investors in Melbourne should focus on areas with good transport links. Naming Coburg North and Campbellfield, between 10 and 16 kilometres north of the CBD, as good spots to consider.
Coburg is set for a major building boom. With plenty of development in the pipeline including a $1 billion residential project at the former Pentridge Prison.
Hotspotting.com.au founder Terry Ryder, meanwhile, believes the areas with the greatest momentum in Melbourne at the moment are the outlying areas. He says locations closest to the city always see growth first, with that growth then rippling out to outer suburbs.
Those areas, says Ryder, include Epping in the north and Sunshine in the west. And in the far southeast he suggests investors look at the City of Casey.
“These are affordable areas with good transport links, job nodes and are within easy reach,” he says.
Is there anywhere to avoid?
As with most cities, the experts warn investors to stay away from oversupplied apartment markets – particularly those with high rises.
In Melbourne this largely refers to the inner city and Southbank. In Sydney Green Square is one such area to avoid.
What about the regions?
Outside of Sydney, Harvey believes other parts of NSW have good potential for investors. In particular, he names Newcastle as being one of his top areas to buy for both capital growth and strong yields.
He says the city, around 120 kilometres north of the state’s capital, is a significant metropolitan town that provides excellent value compared to Sydney.
Newcastle has plenty of fundamentals driving growth, adds Harvey, with one being substantial redevelopment planned for the area.
Are there opportunities to buy an investment property in Australia’s two down markets?
Having both been hit by the downturn in the resources industry, the capital cities of Perth and Darwin have seen declines in their respective property markets. Both in terms of prices and rents, with vacancy rates also creeping up at times.
According to the latest figures from CoreLogic RP Data, Perth and Darwin are the only two markets to have recorded a drop in the median dwelling price over the past year. Recording falls of 2.1% and 3.7% respectively to sit at just over $500,000.
Total gross returns for these cities are currently the lowest in Australia by far! Sitting at 1.9% for Perth and 1.7% for Darwin. Rental yields for Darwin are still some of the highest in the country. Darwin is around 5%, while for Perth they’re a little lower, at around 4%.
The experts largely agree a recovery for Perth and Darwin isn’t on the cards anytime soon. Some see now as a good opportunity to buy into these markets. Others believe it’s better to wait until they bottom out.
But where should investors looking at taking advantage of the opportunities offered by these down markets be focusing? We asked these experts to name their top investment locations for this year.
Perth offers the best opportunities
With the market in a down cycle, Hotspotting.com.au founder Terry Ryder believes Perth might offer the best opportunities this year for investors.
“Most investors pile into markets when there’s a boom on, but the smart ones get into areas when they’re down, and one place to be considering now is Perth,” he says. “Investors should look to buy there if they believe Perth and WA have a future, which I do.”
Ryder adds, however, that there’s no pressure to act quickly. There’s a lot of stock for sale and not many buyers around.
Perth’s property market peaked around three years ago, he says. And it’s been going backwards for the past year or two in terms of both prices and rents. He expects it to hit the bottom sometime this year.
His top picks for investors buying in Perth this year are the southern inner city suburbs of Victoria Park, East Victoria Park and Carlisle.
These suburbs are not only close to the CBD, at a distance of no more than six kilometres. They’re also close to the Swan River and relatively close to the Perth Airport, Koulizos says.
Ryder, meanwhile, likes the outer areas of Perth when it comes to investment potential.
“We tend to find in most cases the areas that show the best long-term growth are cheaper or middle-market areas. Not the top-end areas, and a lot of people can’t afford the top end,” he says.
Ryder adds that investors should follow the infrastructure trail, as infrastructure is a good generator of residential property growth.
In Perth, he says, there are plenty of affordable areas with good infrastructure. Including the City of Armadale, around 25 kilometres southeast of Perth; the coastal City of Rockingham, around 25 kilometres south of Perth; and the City of Swan, around 20 kilometres northeast of Perth.
The City of Swan, elaborates Ryder, is close to the airport and centred on the suburb of Midland, which is an administrative centre with lots of facilities.
Another area to consider, according to Ryder, is the local government area of Kalamunda, and specifically, the suburb of Forrestfield. He says there’s a plan for a new rail link to the airport and the CBD which will be a “game changer” for the area.
Ryder also warns there’s a potential oversupply of inner city apartments in Perth, and therefore this market should be avoided.
What about regional areas of Western Australia?
Property investors should avoid the regional areas of WA impacted by the downturn in the resources sector, according to Ryder. He describes towns such as Port Hedland and Karratha as “basket cases”. And says they’ve got a long way to go before they recover.
Ryder adds that lifestyle areas such as Mandurah, Margaret River and Busselton, are the best places to consider in regional WA.
Where to look in Darwin
There’s no doubt Darwin is the weakest market in Australia at the moment, according to Ryder.
He says it’s really a small town and while its heavy reliance on the resources sector saw it perform well a few years ago, that same dependence has now led to its market suffering.
“It needs something new to come along and reinvigorate the economy and property market, but there’s really nothing major on the horizon to give it a boost,” he says.
So are there opportunities for investors to buy in Darwin while the market is down, just as there is in Perth? According to the experts, Perth is the safer bet.
Ryder says Perth is a more substantial city and economy and Darwin is more remote, like a large regional centre.
“I’m not sure where the recovery in Darwin will come from,” he says. “It needs one or two major projects to come along and give it a kick start.”
Koulizos agrees that there won’t be a recovery in Darwin anytime soon. But for those looking to buy his pick is the northern suburb of Rapid Creek, close to both the CBD and the water.
Stay tuned for the next instalment in our ‘where to buy’ series
Next month we look at where investors in some of the often-overlooked capitals, including Adelaide, Canberra and Tasmania, should be looking to buy.
Where are the opportunities to buy property in these sometimes-forgotten markets?
Investors often focus on Australia’s big cities, overlooking the smaller capitals such as Hobart, Adelaide and Canberra to buy property. But some of the best opportunities could lie in these areas, if you know where to look.
Experts are increasingly naming Hobart as the place to buy. It has indeed already started to see growth after a long period of relative inactivity.
According to the latest CoreLogic RP Data figures Hobart has seen more than 6% growth in dwelling prices over the past year.
Being the most affordable capital city, with the median dwelling price sitting at $335,000, some 25% lower than the next affordable city of Adelaide, it also has the highest rental yields, with returns of greater than five per cent.
While Adelaide’s growth isn’t as impressive, sitting at 3.9% for the year, many experts report that this market is also on the move. Canberra, meanwhile, has seen decent growth of 5.7% over the past year.
So where are the opportunities in these cities? We’ve drilled down to look at each market more closely, and where investors should be looking for the best buys.
Does Hobart offer the best growth potential?
Hobart is one city most investors would never consider, says Hotspotting.com.au founder Terry Ryder. But this could be the year it might “step up”.
“An increasing number of credible reports have identified the fact that it’s no longer a basket case; it’s growing,” he says. “It’s actually starting to lead the nation with certain indicators, which is something that hasn’t happened for 10 years.”
There has been some pretty solid price growth, Ryder says, but there’s still really good buying.
“There are a lot of reasons to look there. Prices are in the $300,000s, so it’s good value for money compared to what you pay in Sydney or Melbourne. In those cities you’ll be paying double or three times as much.”
Ryder says what’s really helping to drive the growth in Tasmania is its proactive State Government. He adds that the economy will be pushed along by tourism; it’s the main industry performing well there. It is stemming from the low Australian dollar encouraging Australians to holiday at home.
The agricultural sector is also going well, says Ryder, as well as the manufacturing and construction industries.
“There are a lot of quite significant new projects – there are new hotels, infrastructure and property developments,” he says.
Ryder says Hobart is the place to be buying in Tasmania. While Launceston is also a good, strong city, he says, in the long-term Hobart will be better for investors.
It’s a small city though, he says, suggesting investors buy close to work nodes and the airport.
He specifically names the northern suburbs as being a good spot to consider. Particularly noting the local government area of Glenorchy, where he says there’s plenty of good buying.
Property lecturer and author Peter Koulizos names South Hobart as the place to buy, pointing to its proximity to town and a campus of the University of Hobart in neighbouring Sandy Bay.
The opportunities in Adelaide
Koulizos believes Adelaide is one of the capitals investors should be considering buying in this year. He says growth is likely to be steady rather than huge. It will most likely be better than the other capital cities.
While Adelaide may not have the “economic oomph” of other states, Ryder says it is seeing growth. There’s a surprising amount of money being spent on infrastructure, including the $1.85 billion Royal Adelaide Hospital, due to open this year, as well as extensions to rail links and road upgrades.
“There’s also a major building boom happening with high rises around the city; that’s a massive generator of the economy there,” he says.
Koulizos agrees that there’s a huge amount of infrastructure being built. He also notes that on the downside there is the looming closure of Holden and other manufacturing plants.
Buyers’ agent and CEO of www.propertybuyer.com.au Rich Harvey, meanwhile, doesn’t believe strongly in Adelaide’s growth prospects for this year.
He says the city is usually a slow performer and stays somewhat under the radar, with no major impetus on the horizon to drive growth.
But Ryder says Adelaide has a lot more going on there than it gets credit for and says its property market has “good momentum”.
“It won’t boom but it will have good growth, and investors should target the right areas with double-digit growth.”
What are those areas?
Ryder says it’s the middle market and the cheaper outlying areas that have the greatest momentum.
He specifically names the growing local government area of Onkaparinga, on Adelaide’s southern fringe, which he says has recently had some of the highest sales volumes in the city.
There’s improved transport infrastructure in the form of a rail extension and a duplication of the Southern Expressway in Onkaparinga, he adds, which has improved accessibility to and from the area.
According to Ryder there’s also good buying in Adelaide’s western suburbs.
“The swanky, upmarket areas are clustered around the eastern suburbs, but I think the western suburbs are really underrated,” he says.
“They’re between the CBD and the beach, and in close proximity to the airport.
“The suburbs with character housing for around $400,000 that are five to 10 minutes from the city or the beach are really good buying.”
Ryder says suburbs within the City of Charles Sturt in that general precinct have good momentum, particularly in terms of rising sales volumes.
He also names the City of Holdfast Bay, on the southwestern coast of Adelaide, as being a good area for investors to consider. Noting its affordability in comparison to the equivalent in Sydney and Melbourne.
Meanwhile, Koulizos says investors looking to buy in Adelaide should stick to the fundamentals of buying close to the city.
He names suburbs including Torrensville, Thebarton and Croydon, all just to the west of the CBD, as having potential for growth.
The type of housing that should be purchased in those areas, says Koulizos, is character housing or “period-style homes”.
“Ideally a house is better than units,” he says. Adding that size does matter but the most important thing is to get the location right.
Where to look in Canberra
The market in Canberra is bubbling along okay, says Koulizos. He notes that what happens in the later stages of this year will depend upon which party is victorious at the Federal Election. Then whether employment is impacted, which in turn will impact upon the property market.
“Employment is fairly stable at the moment but the tradition is that a Labor Government will employ more public servants and a Liberal Government will shed them,” he says.
Koulizos’ pick for Canberra is the suburb of Braddon. It is close to the city center, at a distance of just two kilometres north.
Ryder says the Canberra market was hit by the downsizing of the public service a few years ago. But it’s now showing signs of recovery with a turnaround.
“There was certainly a rise in activity in 2015 and it’s starting to show through in growth in prices,” he says. “Very much the base of the housing market is looking solid again.”
Ryder says investors looking at Canberra should consider the Gungahlin district, around 10 kilometres north of the CBD, which he describes as “solid”, adding that it will benefit from a planned light rail project.
WHO doesn’t love a bargain? We all pat ourselves on the back when we purchase something for less than its true worth. Yes, I can see that smile of satisfaction!
While it’s easy to pick up a new shirt or pants for half price at the latest sales or find a barely used item on Gumtree for a fraction of the cost at the shops, what’s not so easy is buying a property at a price below market value.
Beware of the distinction between cheap property and property under market value. The former is likely discounted for a reason, while the latter is one that is actually worth more than what you pay, and has all the growth fundamentals required for a good investment.
Sounds good right? We all want equity NOW, and what better way to get it immediately than to buy under market value. But exactly how do you do it?
Negotiating is a skill that takes time to perfect. But if you can master the art you’ll likely be able to snag a property for below market value. The key is to keep your emotions out of it and don’t pay a cent over your budget. Use bargaining tools such as flaws you’ve identified in the property to get the price down and favourable contract conditions. Also, be prepared to walk away if you don’t get what you want.
It’s all about the contract
When it comes to making an offer, ensure the contract conditions are favourable to the vendor, which might make your offer more appealing than another higher offer. This might involve giving the seller the settlement date they desire, or offering a leaseback. Put a deadline on your offer though so there’s pressure for them to accept quickly.
Buyer competition drives up prices, so it stands to reason that if you eliminate competition, and snag a property before it has a chance to go the market, there’s a great chance you’ll be buy it for less than market value. That is, what someone else would be wiling to pay for it. These opportunities won’t be plentiful, but they are around; you just have to know how to find them. In addition to getting ‘in the know’ with local agents, try doing a letterbox drop or knocking on doors, or even asking friends or family if they’re interested in selling. If you do a deal direct with the vendor you’ll also save them paying an agent’s commission, which means you might even pay less for the property.
Presentation is huge when it comes to selling a property. If a property isn’t presented most people will look is over and never give it a second thought. It’s these diamonds in the rough that provide opportunities for discerning investors to purchase below market value. If the property has all the right fundamentals for growth and can be improved through a clean up and some renovations, you might have a goldmine on your hands. It takes skill to be able to identify these properties. But if you can it’s a way to create instant equity.
No one enjoys profiting from someone else’s misfortune. But the reality is that there are distressed sellers out there – including those going through a divorce or financial hardship – that need to sell, and quickly, and will take all offers seriously. Deceased estates are also motivated sellers, and mortgagee auctions are another avenue. If you make a decent offer to these types of vendors, and show you’re serious by putting it on paper and accompanying it with a deposit, as well as proving you’ve got finance approval and are ready to act, you’re more likely to have your offer accepted, even if it is below what someone else might be willing to pay on the same day.
Properties lingering on the market
There’s a tendency for many buyers to gloss over a property that’s been sitting on the market for a long time. There must be something wrong with it if it hasn’t sold yet, right? Not necessarily. It might just be lingering on the market because the vendor had unrealistic price expectations. After a certain period of time they often decide – or are forced – to sell and with buyer competition having waned long ago they are often compelled to agree to almost any offer that comes their way. Herein lies the opportunity to purchase for below market value. Just do your research and make sure there isn’t a good reason the property hasn’t sold earlier.
Buy a property before it’s rezoned
If you’ve done your research you’ll know which areas are about to be rezoned – to allow higher density, for instance – and you can use this to your advantage. Properties will likely be more valuable after the rezoning. But if you can get in before it happens, or before it’s common knowledge, you’ll have essentially bought below market value. And you’ll have instant equity once the changes are in place.
Once you’ve decided on an area to buy in, do thorough research to understand what the properties in that area are worth. Then always be on the look out for properties coming onto the market. Have the ability to recognize an opportunity to buy under market value. Also, have finance pre-approval so you’re in a position to act immediately.