Investment properties high in demand

According to two national forecasters the race is on for residential investment properties.

Due to low interest rates and record high rents many investor's rental properties will be profitable from day one - without relying on negative gearing. These conditions have made buying a first home cheaper than continuing to rent.

Because of the uncertainty about the economy and job security some potential buyers, investors and owner-occupiers are still holding back. For people with money to purchase this is an ideal situation as it makes prices and choices even better, however it could all soon be over.

Bis Shrapnel investors have found that investors and first home buyers are currently the two biggest competitive forces in the housing market. Bis Shrapnel's senior economist Jason Anderson has stated that rising rents, and low interest rates are creating perfect conditions for both groups. By them both competing for the same properties it is expected to push up prices at the bottom end of the market.

Mr. Anderson further stated that consumers could take out a fixed rate and lock it in for the next few years at less than 6 per cent. At the same time rental yields are up to 7 per cent with strong rent growth still to come.

The competition at the cheaper end could trigger a partial ignition of prices. From information collected it has been found that in some of the cheaper parts of the market prices are already starting to go up. The information has also shown that prices are up by 5 to 6 per cent. Some economists have predicted that the property market could show signs of increased competition in the second half of the year; Mr. Anderson felt however that it had already started.

National property research company RP Data said last week that a fall in house prices across the country was offset by an increase in weekly rents. This clearly showed that some households would be better off buying rather than continuing to rent.

In Melbourne the median rent for a house increased from $300 to $350 a week during the past year. The median rent for an apartment or unit rose by $40 a week to $320.

RP Data research analyst Cameron Kusher stated that rents were forecast to rise again during the year. Some first home buyers might still however need an extra push to take the plunge. Mr. Kusher further stated that it was anticipated that rental growth would continue to be strong although maybe not as strong as it had been during the last 12 months. He also further stated that rental vacancy rates might remain tight and although the government was offering up attractive incentives some first home buyers were still not in a financial position to buy.

As long as there were more people wanting to be housed than there were houses available, higher rents and eventually higher purchase prices would remain.

Housing estimates from ANZ bank have shown that there is a demand for 180,000 new homes each year in Australia. In the year to September 2008 only 150,000 homes were built leaving a shortfall of 30,000.

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Published on March 3-th, 2009 in Property Investment
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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