Originally published by Smart Property Investment
Have you ever been frustrated by the talk of rising interstate markets offering the best conditions in the current property cycle – yet you know nothing about that market and fear getting it wrong?
This is a very common situation, and particularly now for many Sydney and Melbourne investors.
Brisbane is high on the radar as the best option going forward. The upturn has begun, yet the accelerated growth is yet to be seen. At the same time yields are strong until this activity occurs, well above most Sydney and Melbourne yields. You can anticipate a yield of close to 5 per cent for many of the opportunities currently available and coming to market.
This may temper when some of the pipeline projects come to market, so being aware of what is happening more widely is essential. The 5km to 10km ring is a great area to focus on and many areas are currently being upgraded and renewed.
Be selective with the areas and the product type you buy, particularly the areas close to the CBD where there is a lot of investment-grade, repetitive unit stock. It will potentially create an oversupply when it comes to market, putting downward pressure on yields and values until it is absorbed.
The fundamental cycles of the property markets don’t change. What does is the length of time spent in each sector. Unfortunately, no one blows a whistle when the next phase starts. So you need to look at the basic drivers needed to sustain growth in your investment asset over time, balanced with its appeal to the local rental market in the short and longer term.
1. Population growth is key
Demand drives growth, so when demand exceeds the current supply and you have a shortfall of a desired product, prices rise. Just think “banana shortage” on this one. You need to be aware of the short and long term drivers of population growth and the type of demographic it is attracting. This determines the type of property that best suites the demographic. Are they young professionals, or blue-collar workers, families etc?
2. Infrastructure that is existing and being enhanced is gold
Areas of urban renewal with existing transport, retail and educational facilities that have existing communities in transition perform extremely well. Many of these areas are attracting significant new amenity and significant upgrades to railway stations, busways, shopping centres and community lifestyle areas. Many new master-planned estates, further from the CBD yet close to transport, employment and with big money going into new infrastructure, are also worthy of consideration. Quality due diligence is necessary to really understand the short and long term outcomes.
3. Employment is essential
When you get large companies relocating staff or industry to a new area, they do this for a reason. Understanding their reason and looking at the location they have chosen gives great insight into future growth potential. This is happening more rapidly and widely across many areas of Brisbane now, which is really feeding into the changing urban landscape and demand for new dwellings. Brisbane is also attracting a huge share of interstate migration due to affordability issues in southern states.
It is in bringing these three fundamentals together that you enhance your property investment outcomes. It is also very important to look at the transition of demographic behaviours as they develop.
Young professionals who love the city lifestyle of a 1- or 2-bed unit, walking to cafes and perhaps work, will want different things as they form families and have children. These dwellings will no longer serve them, so they will struggle with the option of space versus location.
Townhouses in great locations, 3- or 4-bed apartments well-designed and aimed at the owner-occupier market, are great investment options as this demographic is usually not well catered for within the 10km ring of the CBD.
The option of a buying a house in these areas, closer to existing infrastructure and lifestyle amenity, is becoming priced beyond the reach of many young families. Many also prefer the easy lifestyle attached property provides.
While a suburban option does not suit them, a good compromise is a larger, well-designed town home in an established urban renewal area that still offers the employment, infrastructure and lifestyle amenity they are used to and wish to maintain.