With lower interest rates, and property prices stabilising throughout 2012, the year ahead will afford investors the opportunity to purchase property with less money out of their pockets. There is also the potential for their investments to be cashflow positive.
Liquidity is bouncing back. I think we’ve seen the worst of the liquidity crisis brought on by the GFC. With the combination of available funding and falling interest rates, Australians will be able to easily invest and reap the rewards of investing in the security of bricks and mortar.
Another trend to look for in 2013 is the increased use of vehicles such as self-managed super funds to invest in property. With the downturn in the stock market, there has been predominantly negative growth across balanced funds in the past five years. After account keeping fees and running costs, portfolio values have gone sideways or decreased in value.
A lot of people are pulling their money out of these balanced funds and moving them into a SMSF. They do this one of two ways. The first way is to simply transfer their funds into cash in their SMSF. However, smarter investors are using this cash and gearing it up. Prior to 2007, an owner of a SMSF could not borrow money to purchase property as part of their portfolio. Now that the government has changed the legislation governing SMSFs, things are starting to change.
People are beginning to understand how they can use their SMSF to grow their portfolio exponentially. As an example, putting in $100,000 and gearing up $400,000 and they are growing a $500,000 portfolio. This is a great outcome for investors, not only the growth on the larger but when they sell the property at 60, there is also no capital gains tax.
These types of strategies, along with improved affordability and liquidity, will really drive the next upward swing in the property market, and in my opinion I can see 2013 being a good year for property investors and probably the best for almost a decade.
When talking with potential investors, I like to use a graphic example which I call the property cycle clock. The 12 o’clock position indicates the peak of the market where property prices are highest. The 6 o’clock position is where the property market is at the bottom of the curve. I believe the property market is sitting around 6.30 to 7 o’clock. Cities such as Sydney are sitting around 7 whilst cities such as Brisbane and the Gold Coast are at around 6 o’clock. In 2013, we will start to see momentum building and confidence coming back into the market.
In the next 12 months we’ll start to see the upswing. This phenomenon starts when smart investors re-enter the property market. As they have invested early in the cycle and in a favourable climate, they start to talk to their peers about their purchase. This in turn drives chatter amongst groups of people, which in turn drives property sales. Your friends buy in, the taxi driver buys in and soon, everyone is back in the market.
This combined with the funds being more available we really are in the box seat when it comes to property. I have been doing this for over 25 years and I haven’t seen it this good.
Now onto hot areas, as I see it over the next year. The Sydney market is ready for an upward swing, in particular the more affordable outer western suburbs and other fringe areas.
The mining boom area has created real opportunities. They have barely scratched the surface and are yet to really get down and dirty, quite literally as the potential upside will be there for generations to come. The boom will attract better infrastructure and services to the area, which is a major attraction for buyers purchasing investment property.
Locations where Coal Seam gas exploration is underway is something investors should take into consideration. There is significant exploration underway in many areas, once this has evolved and gas starts to come on line, this will act as a trigger for infrastructure growth. Investors who buy in now will reap the rewards for years to come.
Parts of Queensland will also present an exciting investment opportunity. Pockets of Queensland will show strong growth. Resources such as natural gas and aluminum are boosting this already robust economy.
Brisbane has come off the boil a little. Some people who buy now will see the upside. I think this area is sitting close to the bottom of the property cycle clock.
All in all, the main thing is to look at the supply, demand, affordability and liquidity in the property market. As your profit is in your buying, the big winners will be the investors who get in while the property market is at the bottom. As I am already seeing things start to pickup, I think 2013 will be the year of the savvy property investor.
Robert Projeski is the founder and managing director of Australian Mortgage Options, winner of over 12 industry awards. He is considered a leading property finance expert in Australia.