B Invested

4 Key Things Property Investors Should Know In 2016

Australian property investor Nathan Birch explains where his is choosing to invest and explains why there is still good deals to be done.

2015 was a golden year for established investors in cities like Melbourne and Sydney, where prices grew between 10 and 20 per cent respectively, according to the Australian Bureau of Statistics.

And while some investors were elated to be cashing in on the boom, there was an equal amount of despair from those wanting to get a foothold in the market. Are we to expect more of the same? Well, yes and no. But right now these are the questions I am asking myself.

1. What’s in store for Sydney and Melbourne?

There are still micro-environments within these cities where good growth will continue such as in outlying blue collar suburbs. On the whole I expect that we will see softer growth as these markets reach the end of this growth cycle, you can clearly see that prices are outstripping household serviceability in areas where properties are ticking over the $1 million mark, so I expect these areas to stay flat for a while.

In terms of the rental market I believe there is a lot of new high density and outer ring development happening in Melbourne which is holding back rental yields.

Rental competition is not as hot as in Sydney where we are seeing a shortage of rental accommodation. I expect that rental prices will start going up in Sydney this year as a result.

2. Where are the best investment opportunities?

With the Sydney and Melbourne markets hitting the peak of their cycle don’t falling into that dreaded trap of panic buying at the top of this cycle. Unless you can find an entry level blue collar property property priced below market value with positive cash flow, look to more cash-flow positive markets.

For investors looking for the next boom I suggest looking to metro Brisbane and the Gold Coast. These areas took stagnated with the GFC and haven’t quite recovered but we are seeing early signs of the tide turning. You can still buy properties cheaper than you could pre-GFC, sometimes even cheaper than the cost of building them today.

Good rental yields are also making for positive cash flow investments in these areas. But beware, as with Melbourne, there is an oversupply of inner city apartments so I would avoid these.

3. The other major cities

For the time being I don’t expect any significant growth in Perth or Darwin. These cities are driven by the resource sector, with that in a downturn there is nothing to drive growth here. Looking to Hobart and Adelaide I don’t think they have the fundamental economic and demographic drivers in place for any real growth right now. They will largely be steady in 2016.

4. Regional and mining towns

The race of the regional and mining towns has well and truly ended and prices will continue to fall or level out. These areas are always risky and not great for the foundation of a portfolio. Ideally you want to buy them early on and sell them before the market retreats, and not hold onto them.

Similarly, regional areas are not expected to show a lot of promise this year. I haven’t seen any regional areas with significant industry of infrastructure in the pipeline to encourage growth.

There will always be some spots that outperform and surprise you, but without a crystal ball you can’t pick them ahead. My opinion is that buying within a 1-hour commute of a major city centre is the most reliable predictor of growth and stability.