The Best Place To Buy An Investment Property In Australia
In real estate terms, the property cycle refers to the continuing phases of rise and fall in capital and rental returns. When creating or growing your property investment portfolio, the trick is to determine how long the property cycle is likely to last, and where the market is strongest at a given time. This involves ongoing research and expert advice to avoid or reduce the risk of making a bad investment.
So where is the best place to buy property for investment?
There is no easy solution or even a standard equation to this question, though it is an important inquiry to consider when investing in property. In our experience, property cycle vary depending on a range of factors. The key to knowing where and when to buy is dependent on thorough research and your understanding of these factors.
Most people tend to think that a capital city or a major regional centre is a no-brainer when it comes to the best place to buy an investment property in Australia. This is largely true if you are only considering supply and demand. But the reality is that there are a number of other factors that could influence your decisions on where to buy.
Capital city or regional?
According to the Australian Bureau of Statistics, Australia’s housing market continues to escalate, even amidst modest economic growth. During the year to end-Q3 2015, property prices rose by 11.4% in Australia’s eight major cities.
When it comes to the property cycle, there’s generally less risk investing in capital cities and major regional centres, as property investment is often seen as a medium to long-term investment.
In capital cities, price fluctuations are usually small – with rental prices remaining stable even when the capital market is falling, and capital values dropping by only around 15%. The property cycle in a state capital or major regional city on average takes 7–10 years to complete.
Depending on local infrastructure and economic development, the property cycle in regional areas can fluctuate more, and tends to average two or three years. One of the major factors that influence capital growth in property, is the ratio of supply and demand, as well a diversified employment base. When looking at say a mining or manufacturing town, the lack of diversity in workers can lead to precarious situations of boom towns and ghost towns, such as in Geelong or even Whyalla. At IPRG we always look for long term growth at low risks, and regional areas can be good investments, but the risk can also be very high due to the lack of income diversity, not to mention the further inland we look, the rarer it becomes that we find a favourable ratio of long term undersupply and high demand.
The key to investing in regional areas is to watch for a town with council plans to expand its infrastructure, such as building an airport, major transport link, university, hospital or long-term manufacturing plant. The prospect of long-term employment and education generally signifies an increase in population, and therefore an increase in property supply and demand. This is true regardless of whether the location is a major city or a country town.
Many people think that investing in high tourist areas can be profitable, but in reality, this can also be risky due to the seasonal and trending nature of these locations.
If the national and international property market can be referred to as a ‘macro market’, then ‘micro markets’ can be considered subdivisions, suburbs, neighbourhoods, or specific areas within a city or region’s overall housing market. Each of these micro markets have their own particular attractions in terms of investment opportunity and often, this is the level where the real purchasing decisions should be made. For example, one specific neighbourhood may create more demand because of its accessibility to schools, shopping or transport, or its trendy café scene, while other areas of that suburb represent a less lucrative investment.
Buying with your head, not your heart
With regard to location, one major trap that investors often fall into is buying a property purely because they have ‘fallen in love with the area’. Unless it makes good financial sense, the investment could be potentially hazardous. If you need help and advice on the best place to buy property in Australia, you should only talk to an unbiased advisor.
The IPRG team of property investment experts can help you reduce risk factors by researching not only the property cycle, but all of the factors that you need to consider before buying. With 20 years of combined experience in the real estate industry, we can take the guesswork out of investment and help you gain the best possible property opportunities. Find out more here.