Even though there has been a slowdown in the housing market, the latest housing finance data shows that property investor activity is slowly on the rise. And with the total returns available from investing in property, it’s easy to see why property investment is still an attractive investment approach for many
According to the CoreLogic RP Data Accumulation Index
for May 2016, the total returns from residential property has increased in value alongside gross rental returns, making property investment an attractive approach for not only home buyers, but also property investors. The CoreLogic RP Data Accumulation Index has been publishing results since June 2009 and highlights the total returns from residential property.
Interestingly, even though combined capital city home values recorded longer and deeper falls during the period of 2011-12, total returns were only negative for a short period of time, helped by the uplift from rental yields. More recently, particularly within the last few months, the annual change in total returns across the combined capital cities has remained quite strong.
Combined capital city home values have increased by 10% for the 12-month period up to May 2016, while total returns stood at 13.9%. Every single capital city except Perth has seen a positive total return over the 12 months to May 2016 with Melbourne the leader of the pack with an annual total return of 17.5%, closely followed by Sydney at 16.9%. Both Brisbane and Hobart recorded a total return of 11.9%, followed by Canberra with 10.1%, Adelaide with 8.3% and Darwin with 1.8% total return. Perth saw a fall of -0.4%.
It's no wonder why Melbourne and Sydney have seen the highest total returns, due to both cities experiencing the most active investments over the last 12 months. In spite of this, gross rental returns for both Melbourne and Sydney now sit at record lows, showing that the majority of these returns were made via an increase in home values.
Looking back over the past five years up to May 2016, the total returns for the combined capital cities sits at 57.8%. Over this five-year period, all capital cities saw a positive return, with Perth again at the bottom of the table with 28.7% closely followed by Hobart with 28.8% total return. This time, Sydney saw very strong returns compared to all other capital cities, with 85.3% total returns. Melbourne saw the second highest total returns with 51.7%, followed by Darwin at 43.4%. After this was Canberra with 41.6% return, Brisbane at 40.3% and then Adelaide with 33.2%.
For Sydney and Melbourne, the key driver was capital growth, whilst many of the other cities saw their total returns through higher rental returns. Both reasons make property investment an attractive approach.
Even though Sydney and Melbourne have recently seen a rebound in value growth, the next few years is unlikely to see as high total returns compared to the last five years. Granted, the historically low interest rates have made property investment much more popular with lower mortgage repayments required; however, interest rates are unlikely to remain this low forever and will rise at some point, which will affect the attractiveness of property investment. It is therefore important to remember that you are able to still meet your repayments if interest rates do rise and do not overstretch your budget, as this could put you in financial difficulty.
Both cities are now out of the boom phase of the property cycle and the markets are starting to slow down. One investment approach would be to focus on moderate capital growth and relatively strong rental returns in the next few years. However, property buyers and investors should still concentrate on areas of high growth, close to important amenities including transport, shops and schools, as these areas will always be popular for those, especially renters who rely on the convenience of important amenities. There are still handfuls of pockets of high growth areas to buy property in, you just need to know where these growth pockets are.
To learn why property investing is still an attractive option, we have put together our top 10 reasons:
10 reasons why property investment is still an attractive option:
- It’s relatively safe and a more stable investment type
- Only 10% deposit required for off the plan properties
- Opportunity for capital growth through longer settlement
- Tax breaks – negative gearing benefits
- Depreciation benefits
- Continued demand for housing as Australia’s population is growing
- Rental tenants help pay for your investment
- Low interest rate environment
- Generally easier to understand and research than stocks and shares
- Ability to use leverage
If you would like more information about the property markets in Sydney, Melbourne or Brisbane or would like to know where you should be investing to make your money work as hard for you as possible, then the best thing to do is speak to one of our Property Consultants. Our Property Consultants at iBuyNew know each of the property markets inside out and can tailor your property requirements and needs perfectly.
Call us today on 1300 123 463
for a free consultation on the best investment approach for you.
Published on 20th of June 2016 by Marty Stanowich