Investors Flooding Back to the Market
Investor activity continues to increase in a market ripe with opportunities. Investment finance has increased by 3% to $6.6 billion, its highest level since February 2008. Investors, based on the value of finance commitments, now represent 32.9% of the market, their highest proportion since February 2005. In a cyclical property market, it’s inevitable that certain factors coincide to favour various sectors. Currently, investors are in the box seat.
Here’s why:
· The rental market is very strong. With record levels of migration, combined with a baby boom, the Australian population experiencing its biggest explosion in history, which will continue to drive demand and be a driving force in the residential market. With more than 200 people per day, or almost 1500 per week, arriving in Melbourne and with a population growth rate of 2% per annum, Melbourne’s population is expected to hit 4 million by the end of the year.
· Already low rental vacancy rates have tightened further, with Melbourne’s rate dropping to 1.5% in March, compared to 1.7% in February. At the same time, positive developments in Project Marketing are bringing many new highly sought-after investment properties onto the market, with some developers building up to 800 high-rise apartments at any one time.
· With interest rates on an upward trend and house prices rising, the resulting decline in affordability is seeing more people priced out of the owner-occupier market, creating even greater demand for rental accommodation.
· Rental yields are on the increase, with Australian Property Monitors suggesting house rents will rise by 5.6% to an average of $380 in Melbourne in 2010. Unit rents are expected to rise by 7.5%, to an average rental of $360, with expectations of even higher growth in 2011.
Raine & Horne – with its highly successful Commercial department and in the process of setting up large, designated businesses in Richmond and possibly Southbank or the CBD – is at the forefront of Project Marketing. Investors, given many are now looking to snap up opportunities and buy off the plan, are welcome to make inquiries, with high-rise projects currently under development in Southbank, the inner city and other locations.
While the prospects look very good, a word of caution: not all properties will perform well. Some suburbs will out-perform, while others will under-perform. The same goes for varying types of properties in those particular suburbs. Buy selectively. Well-informed investment decisions based on a good understanding of the market and sound advice from trusted experts is vital in the current market.
Investigate how property prices performed before, during and after economic downturns. A good place to start would be the recession of the early 1990s. Note the suburbs and house types that bottomed out the most and those that rebounded the most. Understand the most price-sensitive areas and the more stable ones. Both types can build wealth, but over different time spans.
Randolph Clements
Chairman
