New year presents new investment opportunities

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As the reverberations of changing market conditions and intervention from regulators continue to be felt, one industry body has issued investors with some timely tips to help them navigate 2016.

Despite almost constant speculation of property bubbles forming in markets across the country and fears of investors being frozen out of the market through changes to lending practices, the Property Investment Professionals of Australia (PIPA) still believes real estate is a sound investment location.

“Buying a property is one of the biggest purchases most people are likely to make and many still view property as the key vehicle for their retirement savings nest egg,” PIPA chairman Ben Kingsley said.

“In spite of APRA’s clampdown on investor lending, investment loans remain affordable on an historic basis so the opportunities are there for the taking,” Kingsley said.

While there may be viable investment opportunities out there, PIPA’s first piece of advice is that investors may have to start looking further afield to find them as current strong performers start to come off the boil

“I think it’s a story of conditions starting to change. Sydney, and to a bit of a lesser extent Melbourne have had fabulous runs, but now we’re at the point in the cycle where it’s time to look to some other markets where there’s some potential,” Kingsley said

“Brisbane, Adelaide, maybe Canberra and possibly Tasmania are areas where I think some uplift may be enjoyed,” he said.

While the distance between some of Australia’s markets may make interstate investing daunting, Kingsley said it can also have its advantages.

“When you’ve got the tyranny of distance like we do here and the fact that we have state based economies, there’s a good chance that cycles will be out of sync.

“If you can find the state that best has their economy in order, then you’ll find the areas that have the best chance of uplift.”

With those differences present across the country, Kingsley and PIPA believes 2016 is a perfect time for investors to take a chance on trying to secure themselves a bargain by taking advantage of market conditions.

“I think Sydney and Melbourne are still seller’s markets at the moment. If people start taking the long term view of trying to find areas that may be 12-18 months from hitting their bottom, then that’s the time to start making some offers and seeing if they can grab a bargain.

“Somewhere like Perth or Darwin might be a place where people can take advantage of that and drive a bargain. We all like to think we’re experts in picking markets to get in at the bottom and out at the top, but you do need to take a good look at conditions and what is happening.”

With investors encouraged to start looking away from their own backyards, Kingsley said investment strategies such as “rentvesting” or co-ownership should be considered for 2016, especially for those living in areas of deteriorating affordability.

“I think we’ll see a lot more of ‘rentvesting’ in 2016.

“It’s story of affordability. People have decided that life is short and they want to live where they want and put their money to work while they enjoy themselves.”

For those considering a co-ownership structure, Kingsley did have some words of caution.

“What you want to see is that people make sure they have their terms set out. Especially around things like exit clauses, things like you only get your initial investment back if you break the agreement in the first five years rather than any of the increases. You want people to be taking a long term view of real estate.

“It’s super important you get the right advice. Something on the back of a napkin isn’t going to hold up. It’s very important people see their lawyer and make sure they have an agreement that will stand up.”

For those who have joined the market recently or are planning to do so soon, Kingsley said they should keep in mind that market performance like that seen in Sydney and Melbourne recently isn’t guaranteed.

“For those that got in during the last quarter or so, it’s probably a story of them just having to maintain the faith for the next three years or so before they see any real movement.

“But with real estate you don’t want to be timing both your entry and exit poorly. Property is a great way to generate passive income, and while capital growth is great having a passive income stream is a great thing, especially when people reach retirement.”

While 2016 may need to see investors try some different methods, there is one recommendation for the New Year that has a familiar ring to it.

“There still remains no legislation in regards to providing advice about property investment. We’re hopeful that may change in 2016 and that we might see a senate inquiry into it, but that’s no certainty,” Kingsley said.

“In the interim we want to make sure people are doing their research and making sure they’re working with people who are reputable and knowledgeable advisors.”

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