Inner-city markets present “limited-time” opportunity for investors

By Gerv Tacadena | 27 Sep 2021

Property investors have a limited-time opportunity to get a slice of inner-city housing markets in Sydney, Melbourne and Brisbane before prices are through the roof again.

Property investors have a limited-time opportunity to get a slice of inner-city housing markets in Sydney, Melbourne and Brisbane before prices are through the roof again.

While there is no denying the substantial impact of the COVID-19 pandemic on the inner-city markets, McGrath founder and executive director John McGrath said these effects are creating a "rare" opportunity for property investors and buyers.

"In the grand scheme of long-term property ownership, COVID-19 and its associated effects are short term. This makes inner city apartments a once-in-a-lifetime value buy," Mr McGrath said.

Why inner-city conditions are ideal

Mr McGrath believes that restrictions on overseas migration, which has put a lid on the demand from overseas buyers and tenants, changed the dynamics in the inner-city markets, opening them up to would-be buyers.

"Local buyers have little competition from overseas buyers and new immigrants, with Australia’s international border currently expected to remain shut until 2022, so, savvy first movers are seizing the opportunity to snap up inner-city apartments," he said.

Furthermore, first-home buyer activity in these markets is starting to moderate, allowing returning investors who are willing to look past the short-term issues of higher vacancies and lower yields.

"Whilst the value available to CBD apartment buyers is clear, many people don’t realise that the pandemic’s impact has extended beyond the CBDs to inner ring suburbs within a 10km radius.”

Some local government areas (LGAs) in Sydney, Melbourne and Brisbane have either recorded declines in or maintained apartment prices over the past year.

Chance to buy positively-geared properties

Mr McGrath said current market conditions allow investors to have a rare chance to buy positively geared or cash flow investments.

"It is typically achieved after years of paying down the loan to bring the ownership costs below the rental returns," he said.

Over the 2019 financial year, close to 60% of Australia's 2.2 million property investors declared a loss, making negative gearing the norm.

However, Mr McGrath said low mortgage rates are changing the game.

"Sydney’s gross apartment yield is 3.1%, Melbourne 3.5% and Brisbane 5.1%8 whilst the average interest rate on a variable investment loan is 3.02% or 2.38% fixed for three years," he said.

"Local owner occupiers and investors have a unique, time-limited opportunity to use the advantage that a closed border brings to buy well in FY22, before life returns to normal and we see an anticipated uplift in both rental and capital values across our inner cities."

Photo by Ivan Tsaregorodtsev on Unsplash

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