If you’re currently looking to buy property in Sydney or Melbourne for investment, it’s likely that you are not only stretching your budget, but also struggling to get a decent rental yield
This is mostly due to prices in these two markets rising much faster in the last 5 years than gross rents, making the investment far less affordable. In fact McGrath founder and real estate veteran John Mcgrath noted recently that when looking to buy property in Australia there are “two housing markets, Sydney/Melbourne and the rest of the country, which can be broken up into regional areas and other capital cities”.
What if you’re looking to buy property in residential real estate that has capital growth potential and your maximum price point is $400K?
Well, according to the latest Corelogic Property Pulse report, there has been a significant reduction in the amount of sales occurring in this price bracket.
The report indicates that over the last 12 months, just over 31% of houses and 37% of units that sold in Australia exchanged for less than $400K. If we look back 10 years ago, over 62% of houses and nearly 69% of units sold for less than $400K.
That’s a huge drop in affordable real estate listings since 2007. Meanwhile, wages growth in Australia has been so sluggish, it’s become an oxymoron.
At the sub $400K price point for houses, many would think that we need to buy property in regional areas..
Sure there are some good regional investment opportunities and the prices can be attractive, but the ultimate goal for most of us is capital growth. This doesn’t usually happen unless there is a rapidly increasing (and stable) population combined with major infrastructure spending.
A case in point is a town called Hay in regional NSW. You can find houses for sale in this area for less than $100K with 12% gross rental yield, which is at least 3 times better than what you’ll find in Sydney. So considering these numbers, why doesn’t everyone pile in and buy property here? Well, because the economic activity and population growth is so stagnant in this town, the annual capital growth average for real estate over the last 20 years has never reached 3%. Buying property in this area would be a pretty slow road to riches.
The main point here is that cheap doesn’t always mean good.
So what to do? Well for houses under $400K, we would recommend areas outside of Sydney and Melbourne that have strong employment hubs and major infrastructure projects that are underway.
At Adviseable, 68% of the houses we’ve purchased for clients in the last 12 months have been:
- under $400K
- they’ve all been in city suburbs
- they’ve all been houses (not units), mostly with substantial land components and importantly, they don’t attract strata levies that can really hurt your cashflow.