Following a strong run in many locations in 20141, sound investment fundamentals and low interest rates continue to make well-selected property an attractive investment selection in 2015.
A record number of investors hit the real estate market last year, creating a buying and selling frenzy across many parts of the country. According to Domain Group’s senior economist Andrew Wilson, a colossal 14,500 homes were listed for auction over September to December, compared to 12,584 for the same period in 20132.
Over the course of 2014, capital city house values grew by 7.9%3. Gains were strongest in Sydney, with year on year growth of 12.4%. Adelaide grew at 4.3% making it the fourth best performing capital city behind Melbourne [7.6%] and Brisbane [4.8%].
With the Reserve Bank of Australia reducing the official cash rate to a historical record low of 2.25% at its February meeting, and a rise in interest rates unlikely in the short to medium term, property is likely to remain a popular investment option4.
But it’s not just low interest rates that make property a popular investment option. Here are some of the key reasons for property’s persistent appeal:
Property has proven itself to be a trusted wealth creation tool that is often easier to understand than other complex investment options. And with a long-term investment approach and a good property manager it can largely be a set-and-forget type asset, that doesn’t require daily input on an investor’s behalf.
Property offers both the potential for capital growth over time5 as well as ongoing passive income in the form of rent – a compelling combination for long-term wealth creation.
Many lenders will finance up to 90 per cent of the value of the property based on the lender’s valuation – much more than for other asset classes.
Smart improvements can quickly push a property’s price upwards, enabling investors to speed up returns.
With the heady spring and summer months now behind us and low borrowing costs continuing, autumn could prove a good time to buy for many.
Remember, if you’re looking to explore the property market, it pays to have your finances in order so you can be ready to act when the right property pops up.
Getting an indication of your borrowing capacity will also help you to narrow your property search appropriately.
Australia posted only moderate economic growth in 2014. A sustained weakness in terms of trade, a reduction in income growth and ongoing political issues took a toll on consumer sentiment. However, there seemed no limit to investors’ appetite for real estate, with the property market going from strength to strength.
So what can we expect for the rest of 2015?
The Reserve Bank of Australia (RBA) kicked off 2015 by reducing the official cash rate to 2.25 per cent – the first change in monetary policy since August 20136 and one of the most intensely anticipated decisions for some time.
Speculation continues as to exactly when interest rates will begin to track upwards again, but in any event it seems unlikely that we’ll see a dramatic lift upwards in borrowing costs any time soon, with economic conditions expected to remain soft.
In a recent statement RBA Governor Glenn Stevens said that in Australia, the available information suggests that growth is continuing at a below-trend pace, with domestic demand growth overall quite weak6.
“Overall, the Bank’s assessment is that output growth will probably remain a little below trend for somewhat longer, and the rate of unemployment peak a little higher, than earlier expected. The economy is likely to be operating with a
degree of spare capacity for some time yet,” Mr Stevens said.
Broad consensus is that economic growth will remain soft in 2015. Investment bank Goldman Sachs’ chief economist Tim Toohey has forecast gross domestic growth for 2015 of just 2%, while Westpac has predicted growth of 2.5%7.
According to the latest CoreLogic RP Data Home Value Index8, the annual rate of home value growth in Australia peaked at 11.5% across the combined capitals over the 12 months to April 2014, prior to the rate slowing to 7.9% in December 2014.
Houses performed better than units over the calendar year, with house values gaining 8.4% compared with a 5.1% increase in unit values.
“Based on the median price across the combined capital cities, houses are attracting a $100,000 premium over apartments,’’ said CoreLogic RP Data research analyst Cameron Kusher.
CoreLogic RP Data expects dwelling values will continue to increase in 2015, at least across the combined capital cities. However, the rate of capital gain is likely to continue to soften.
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Sam & Matt
Adelaide Mortgage Broker +plus more…
5 www.asx.com.au/documents/resources/russell-asx-2014-long-term-investing-report.pdf (p. 7)