Although 2018 was a testing year for property investors, 2019 may actually hold many opportunities. Yields are rising, the cap on interest-only loans has been lifted and weaker market conditions mean there are bargains to be had.
Sydney’s real estate market may have performed poorly over 2018, but we expect that, far from being another bad year, 2019 may well hold a number of opportunities for property investors - especially those looking to grow their portfolio of properties.
Here are the trends we’re noticing now and what we expect to happen in the 12 months ahead.
1. There Are Bargains To Snap Up
At the height of Sydney’s property market boom, the competition for properties was fierce. Every auction usually brought out several bidders and buyers were forced to act quickly. This led to many people paying more than they’d hoped to. There were very few bargains to be had.
This isn’t the case any longer.
With prices falling 8.9% across Sydney over 2018 and an auction clearance rate just over 50%, the market simply isn’t what it was. For investors, this means there are fewer people competing for properties and vendors are often willing to sell for considerably less than they would have been 12 months ago.
As an investor, you’ll now often find that you have the time to make a careful selection about your next property and a much better chance of securing that property for a good price.
That’s great news if you’re looking to add to your property portfolio. After all, while we’re not predicting massive price gains over the next 12 months, the value of quality Eastern Suburbs property will almost certainly rise in the longer term.
2. Yields Are Rising
The yields on Sydney properties rose at the end of 2018, according to CoreLogic’s December rental report. The average gross return on Sydney houses lifted to 3.1%, while on Sydney apartments it was up to 3.7%.
The caveat here is that yields didn’t necessarily rise due to increased rent. In fact, rents in the East fell 7% for houses and 3.3% for units. It was because property prices fell even further than rents.
Still, if you’re entering the market, that doesn’t matter. The fact is you’ll be getting a better return on your investment than has been the case for some time. And, as we mentioned above, capital gains will follow when the property market also enters a new cycle and prices start rising again.
3. APRA Has Removed The Cap On Interest-Only Lending
At the end of 2018, the Australian Prudential Regulation Authority (APRA) announced it was removing the cap on interest-only loans for residential properties. The cap was originally introduced due to housing bubble concerns. However, with the property market since having cooled, APRA spokespeople said the cap had served its purpose and was no longer needed.
That’s good news for investors, who make up the overwhelming majority of people taking out interest-only loans. It should especially help those existing property investors whose interest-only term will soon come to an end and who were worried about their loan reverting to principal and interest.
4. Weighing Against These Factors
Of course, weighing against these factors is the upcoming federal election and the ALP’s pledge to reform negative gearing and remove the full benefit of the CGT discount on property. Both provide a real incentive to invest in real estate ahead of any other asset class.
Our view, however, is that if there is a change of government, these measures may not be all bad news for property investors.
For starters, the ALP policy doesn’t intend to scrap negative gearing altogether, but instead to limit it to newly built properties. It also says that any changes will be grandfathered. That means existing property investors shouldn’t be impacted by them. If anything, the threat of them coming may encourage more activity in the property market so that investors can continue to take advantage of the current tax incentives before new laws pass.
5. Buying For The Long Term
Finally, if you’re buying property for the long term, as we think you should, it’s impossible to predict what will happen down the track. In 10 or 20 years, who knows what rules will be in place. You may find negative gearing reinstated to full effect or an entirely different tax regime in place. You may even find that the pundits are wrong and that the Labor Party doesn’t win the election at all.
In fact, the only certainty in this is that property in quality areas eventually rises in value regardless of short-term market cycles or changes of government and laws. And there’s no area that’s higher quality than Sydney’s Eastern Suburbs.
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