Over the past few years, we saw many investors sell off their assets to take advantage of record prices. With the current market climate and the changes set to come, we are expecting to see a resurgence of investor activity, as savvy investors look to reinvest their windfalls. High rental prices, historically low vacancy rates, increasing yields, the return of migration and a market that is showing the first signs of new growth, are just a few of the reasons 2023 could be the right time to buy an investment property.
Rising rents and the current rental crisis
The reality is, since the start of COVID-19 we have seen a steady increase in rental prices off the back of high demand and low supply levels. With the current supply not expected to increase dramatically for at least another 12 to 18 months, there will be continued pressure on rental values as demand continues to rise. Looking back to 2019, the average weekly rent for a house was $734 and $503 for a unit. Fast forward to the end of last year and prices had risen to $774 and $562 respectively, which equates to a 5.45% increase for houses and 11.72% for units.
With rising population rates and the Sutherland Shire population alone expected to increase by 26,433 persons by 2036, demand is only going to rise. For investors looking to put money into the market today, strong rental prices are being achieved and all elements are looking favourable for continued rental rises and healthy capital growth over the long term.
“Under supply is at the heart of the current rental crisis. It’s driving rents and has resulted in the lowest vacancy rates on record. In many ways it will also be the catalyst that draws investors back to the market and eventually lead to more sustainable conditions long term.
Investors who purchase in 2023 are likely to see another 12-18 months of under supply before we see an increase in the overall volume of available rental properties.”
Jack Tripi – Sanders Property Agents
Stabilising prices & interest rates
For the last few months, data has suggested that we may be nearing or have already passed the bottom of the current property cycle. With a 0.3% rise in median values recorded in February, all signs are pointing toward a period of price consolidation, followed by a period of more substantial growth.
Whilst no one exactly knows when prices will start to significantly rise again, it is likely to coincide with the capping of interest rate rises or an interest rate cut. Whether we are looking at a six to twelve month period of stabilisation we don’t know. But as confidence returns and interest rates balance out, it will bring more buyers and investors back to the market once again fuelling competition. Purchasing this year could mean an upswing in the value of your investment property within the first 12 to 18 months of ownership.
If you are looking to invest, what should you be looking for?
Market conditions aside, the key to success when investing is buying a quality property that rents easily, will maximise your yield and won’t cost you the earth in monthly running costs. For those looking to secure an investment property in the Sutherland Shire, look for properties that are close to public transport, schools and shops, whilst also offering ‘lifestyle benefits.’
Apartments generally offer a more cost-effective entry point and will more than likely be better if you are chasing higher gross rental yields. The lower price points typically associated with units present an ideal option with rising interest rates and reduced borrowing capacities. If you are considering a unit be wary of those in complexes with high strata fees that don’t offer additional lifestyle benefits such as lifts, pools and communal BBQ areas. Equally those in older blocks where the block itself requires structural works are important to be aware of.
Whilst apartments can present a more cost effective and low maintenance avenue to property investing, locally, houses over the long term will be a better option if you’re an investor that is looking for higher rates of long-term capital growth. Land is scarce and will become more valuable as the local population continues to rise and families look for properties that offer space.
Regardless of whether it is a unit or a house, look to purchase a property in the best location that your budget allows. What the last two years have shown is that renters are looking for space, multiple living options, work from home opportunities and an outdoor space that allows for entertaining and relaxation. Focusing on these key areas should set you up for beneficial gains over the longer term. If you are not averse to renovating and have the financial capacity to do so, looking for properties you can add further value to through minor or semi-minor renovations is another thing to consider.
Join our upcoming investment seminar
This year we’re excited to be planning a series of events to help keep you up to speed on various real estate topics. This spring, we’ll be hosting an Investor Bootcamp. Be one of the first to know about it by submitting your expression of interest below and we’ll be in touch as tickets become available.
A member of our team will be in contact to provide further event details as they become available.
