Is Residential Property Still A Viable Investment?
Many young people wonder how they will ever save such a large deposit for a home while still paying rent, and the “smashed avocado” theory of becoming frugal and not eating out does not change the fact that with average house prices of over $1,000,000 it has never been more difficult to get a foot on the property ladder.
Couple constantly rising house prices with banks tightening and changing lending policies and securing property is looking even harder.
This poses the question: is residential property still worth investing in? Or does this lack of affordability trickle through to investors too? Should investors forgo residential property, eat their smashed avocado on toast and dabble in the share market instead?
Despite escalating property prices, investing in “bricks and mortar” as a medium to long-term investment remains a sound strategy as according to the ASX Long Term Investors Report 2016, residential property is the most valuable asset with the highest average annual gross return of 8 per cent. Property is also considered less volatile and more stable than other asset classes. And for many would be owner-occupiers, investing before they buy their own property to live in can also represent a way to enter this tricky property market and build some equity before prices rise even further.
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While some suburbs in inner-city pockets may not “stack up” well for investors in the current market climate there are still significant capital gains to be made by investing in growth corridors in outer areas of Sydney where house prices will rise steadily, but significantly, over time or where they may want to themselves live in the future.
Investors need to be savvy and informed and do their research to identify where they feel the real hotspots in Sydney are – as these are the areas that will see the most growth over the medium to long-term. A good way to do this is to track where large developers are acquiring land, as a lot of the homework has been done to identify future trends.
Infrastructure projects are another key driver of growth and once completed, these projects can add significant value to suburbs. Improved motorways and arterial roads improve accessibility to suburbs and make them more “liveable”. Growth in infrastructure also connects work commuters, residents in South West Sydney’s regions have recently had 20 extra express trains per week to the Sydney CBD during peak hour which is expected to increase rail passengers by 21 per cent over the next five years.
New rail links are another major benefit as public transport always factors high on any tenant or owner-occupier wish list. Other major projects such as Badgerys Creek Airport also create significant employment, with the working population wanting to live close by – which will create greater tenant demand for these emerging suburbs.
Residential investment is a long way from being dead in the water – but gone are the days when snapping up an apartment close to the city is going to pave the way for the best returns. Investors need to consider their goals, sharpen their pencils and look beyond the popular suburbs to work out where they will see the most growth and this will continue to be driven by new growth areas, improving infrastructure and new employment centres.