It’s no secret that buying an investment property in Sydney is now so 2016, and if you weren’t quite into it then, it’s too late to suddenly decide that you are now. It’s not like you weren’t warned – not only did I issue warning after warning as the fire under the property market that was Sydney began to lose heat, so did virtually every other expert out there. It wasn’t that the ‘boom’ had gone on too long, or that the ‘cycle’ told us the end was nigh – it was more about that fact that the median price had finally reached a point that was way above what the average income earner could afford. There is only one single thing that makes a property market grow, and that’s demand. When demand is taken away because price ultimately takes buyers out of any market, then it becomes a waiting game for wages to catch up again.
If you’re thinking that this means that you need to now wait to get an investment property under your belt, think again. Savvy investors know that the theory that you should only buy property in a market where you live, or close to where you live, is a dangerous one. The mistaken belief that you ‘know’ the market where you personally reside is one of the biggest traps for property investors. This is because what you ‘know’ about where you live has nothing to do with whether the area is one that will give you the best investment return. What you know about your area relates to lifestyle, not economics, and it is economics that will determine whether any area will grow well and deliver a suitable rental return.
And so, if not Sydney, then where? Melbourne is close behind Sydney in terms of its point in the cycle, and it’s a fast closing window. Hobart has been performing well, but its small population and low population growth usually means it has a stellar year or two and then nothing for many more years. Perth is likely at the bottom, but being at the bottom doesn’t mean that you’re headed up any time soon. And even when an area at the bottom does head upwards, it can take years and the climb can be painfully slow, especially when there is an absence of strong economic drivers.
My money’s on Brisbane, and it’s all pure economics.
Firstly, the average house in Brisbane is still well below what the average income earner can afford. Even without wages growth, interest rates could go up, and property prices could increase, and the average wage earner could still afford to buy property there. Since demand is the major driver of growth, there is no immediate impediment to demand, except, of course, oversupply. This is an easy one to tackle – just don’t buy in an area with impending oversupply!
Secondly, changes to the age profile of the population in Brisbane over the next 10 years are expected to see those aged 20 to 34 move on to the next stage in life and look at buying a home of their own, according to Angie Zigomanis from BIS. He said the emerging trend would underpin demand for new housing on Brisbane’s suburban fringe and established housing in the inner-city region. These people will mostly qualify for the first home owner grant of $15,000 (and stamp duty concessions) which is available on many of the houses on the market, due to the high $750,000 cut off for the grant. That wouldn’t even get you an apartment in Sydney, but it buys an awful lot in Brisbane.
Then of course we have infrastructure – tons of it. New University campuses, major medical developments in both north and south suburbs, and main roads, tons of them, making the commute around all parts of Brisbane easier and easier. There’s also the Queens Wharf Precinct, Brisbane Airport Redevelopment, Brisbane Live Entertainment Arena, Northshore Hamilton and a new International Cruise Terminal, to name a few.
It’s no surprise to see strong jobs growth in Brisbane in both the education and medical sectors, and also improving employment figures after a few years of poor results. Things seem to be looking up in this area, but remember, in Brisbane wages growth isn’t as important for keeping a floor under what is already a highly affordable property market as it is in Sydney or Melbourne.
Strong inward migration will contribute, with the population expanding from not only overseas but interstate migration. Why wouldn’t you want to live in a state which is beautiful one day, perfect the next? In addition, over the next 15 years, the population of Brisbane is set to double. In 2015, Brisbane’s population was approximately 2.2 million, and is expected to grow to 4.6 million by 2031. This means that the city will require 40% more homes than it had in 2006, according to government estimates, with a focus on building up, not out.
Finally, Brisbane is on track to become Australia’s next New World City by 2022. Since 2000 it has consistently ranked within the top 30 per cent of the world’s fastest growing cities, and has been particularly noted for job creation.
It’s an investor’s dream , just waiting to be grabbed. Just be careful what you buy. Apartments in the city are not the best choice, nor are high-end properties where demand is subdued. Think families, millennials and migrants, and find the kind of property that they are most likely to demand.