There has been some red-hot media attention on housing affordability lately. Surging property prices in our capital cities such as Sydney and Melbourne are making it increasingly difficult for first home buyers to enter the property market. Our generation are constantly told to be frugal with their spending, as every last dollar needs to go towards that massive housing deposit that seems to take forever to accumulate. Seeing as the median house price in Sydney has reached an all time high of $1.15million, it’s no surprise experts are famously suggesting Gen-Y’s to cut back on all luxuries, including smashed avocado and lattes at your local cafe. However, there is a solution to where you can have both, by getting on the property ladder while still enjoying your favourite breakfast. It all comes down to educating yourself on different property markets and understanding the game of property investment.
Making decisions based on your emotions or your ego can work in many realms of life, but when it comes to buying an investment property, those with a proven strategy are more likely to succeed consistently. First and foremost, having basic knowledge of what, where and when to buy should be the first steps in your plan. Successful property investors scan the market through predetermined criteria, separating the suitable from the unsuitable. Teaching yourself how the market works is important but the biggest killer is procrastinating and not doing anything at all. Before long you may have missed the boat and are no longer in a financial position to invest. There has never been a better time than now to get into the property market – provided you know what you are doing!
WHAT TO LOOK FOR WHEN PICKING AN INVESTMENT PROPERTY IN 2017
1) Location, location, location!
The “80/20” rule should be applied at all times when investing in property as it is always important to place heavy emphasis on location. 80% of the performance of a property is usually from it’s location, and the other 20% is from the asset itself. Buying in high demand areas close to schools, shops, public transport and other amenities is paramount.
2) Stick to an affordable price range
It is important for investors especially first home buyers to take a conservative approach to their investment purchase and focus on buying an investment property around the $400-500k mark. First time investors can easily find themselves over-leveraged which can limit their ability to expand their portfolio. Also lower-priced properties can have strong potential for capital growth if bought in the right areas and also tend to have a higher rental yield. These are important factors in case interest rates start to climb.
3) Know your target tenant market
Building up knowledge on the local market will help influence your decision of the type of property to buy and where to buy it. Changing demographics and trends are having different demands on the type of properties people are now wanting to live in. For example, young professional couples will most probably prefer an apartment or townhouse that is close to public transport, cafes and restaurants, while young families will want to be close to school, parks and shopping precincts.
4) Buy with your head not your heart
When buying property, it is easy to get caught up in your emotions. While a house may look nice and pretty to you, it may be the wrong business decision to buy due to its location or aspect. Often, an emotional buyer will buy a property in a below average suburb out of fear of missing out. Emotions and fear take over and the buyer is left with a second grade property. It is important to know the market you are buying in, and base decisions on numbers, not emotions.
5) Follow the infrastructure
Experience investors follow infrastructure trends, which in turn drives property prices up. The urban renewal strategy for Newcastle has boosted areas like Adamstown, Wickham and Broadmeadow. Two years into its revitalisation, it is already having an impact on areas that were not usually favoured like Waratah, Mayfield and Georgetown. To pick the next hot spot, look where the government are upgrading infrastructure. This will also help if and when interest rates start to rise, due to the new infrastructure underpinning the region.
6) Seek professional help
Look to make professional consultants to help you source and negotiate your next investment property purchase. Real estate agents are hired by sellers to help them get the highest price possible in the market. A property consultant can represent you as a buyer and help you get the right property at the right price at the right time. Their value that they bring to you can far outweigh the price that they charge.
What should we expect in 2017?
The Sydney market will always be strong, however its probably have reached its peak this year. Although we do not expect a crash in prices, it will most likely stagnate for the next few years. First home buyers are continuing to struggle to find an entry point into the property market. Low interest rates will continue to drive the hot Sydney market as demand far exceeds supply.
My personal opinion is that properties around the $450-650k price range in The Central Coast and Newcastle market will continue to rise at a steady rate regardless of the economic climate. There is always a demand for these types of properties due to the affordable price points and there is also a limited supply in the well located suburbs. Confidence in the markets will grow with the continual development of local infrastructure projects and proximity to Sydney.
What suburbs to invest in 2017?
The Central Coast and Newcastle are where I have seen a lot of positive growth in the past. The majority of my portfolio are located within these markets and I will continue to expand in the same areas. I am confident that these markets will continue to perform and I back them. There is a limited supply of properties due to the overflow from the Sydney market and population growth to the areas. People are becoming a lot more mobile and independent with their work, so therefore choosing lifestyle over being close to a capital city CBD. The economic drivers support these areas for growth through their proposed infrastructure plans which are also pushing the private sector to infiltrate these pockets.
Newcastle has had some solid upswing in the recent years, while The Central Coast is not too far behind. Historical data has shown steady growth in both of these areas and my prediction is they will be the next boom hot spots. The following suburbs I would be keeping my eye on:
Wickham is the post-industrial precinct of Newcastle’s west end which is one of the key suburbs that is set to surge in the next decade. One of the major renewal initiatives currently underway is Newcastle light rail which includes the delivery of a new transport interchange at Wickham. Investors are now noticing and property values are starting to rise.
Broadmeadow is forecasted for exceptional growth which could quite possibly outperform a lot of Sydney suburbs. Broadmeadow is the geographic centre of Newcastle. The government have released a document outline a blueprint for the future extension of the light rail network which links Wickham to Broadmeadow. Council want to see high density residential in the area, and it’s close to town which will result in higher price growth.
Who doesn’t like living near the beach? Merewether is the blue ribbon beach suburb of Newcastle. Located 3kms from Newcastle’s CBD, this suburb includes some of Newcastle’s most famous beaches. Merewether attracts a high end demographic of inner city workers and beach lovers who will pay the price to be near the water. High profile identities such as mining magnate, Nathan Tinkler and NRL super star Jarrod Mullen both own luxury homes in Merewether. This suburb is blue-chip and will never decline in value.
Narara is a suburb of The Central Coast, located 4kms from Gosford CBD. The suburb holds Narara railway station on The Central Coast to Newcastle line. It is a one hour commute for Sydney workers which makes this appealing to people missing out in the Sydney market. Convenience and reasonably priced property is the driving force behind Narara’s growing popularity with tenants and buyers. The proximity to the CBD, train station and other amenities are a big draw card for Sydney buyers looking to occupy or invest.
Kariong is the first suburb when you come off the M1 freeway when entering The Central Coast. Kariong is a hit with Sydney commuters and is considered one of the best performing suburbs across the region. With a median house price of $640k, city buyers are happy to commute to take advantage of the savings compared to the Sydney market with a median house price of $1.15M. The proximity to the freeway is by far Kariong’s biggest drawcard.
You may not want to live in these suburbs (although they are beautiful) as they are 1-2 hours from Sydney, however they make a great option for you to enter the property market at an affordable price point. Rental returns are quite solid in these regions so servicing a mortgage shouldn’t be a problem if the correct asset is selected. The Australian property market is evolving and we must adapt to new market conditions. No matter what, you will always have to save for a deposit, however you can always expand your search criteria to Northern NSW if you can’t afford to invest in your local area where you have originally had your eyes set on. Start off with a small investment, just to get your foot in the door, then move onto the dream home later. After many years of successful investing, driving a Bentley could be seen as normal! Continue to educate yourself on other methods of getting into different property markets, while still enjoying your favourite coffee and avocado on toast.