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Calculated risk

Notwithstanding the effect of COVID and ever-escalating interest rates on house prices, there are plenty of reasons why now is a good time to invest in residential property.

  5 minutes


During the pandemic, there were some challenges for property investors. “During COVID, a lot of people had issues collecting their rent or had to drop the rent, or even had problems getting tenants for their properties,” says Trevor Robertson, BOQ Specialist’s Head of Residential Products. “Things appear to have turned around in most capital cities’ property markets where other areas may take longer to rebound.”

The stabilisation of the market is an early sign that, despite ongoing discussion of interest rates, now may be the time to consider investing in residential property. However, according to Julian Muldoon from 1Group Property Advisory, it’s not exactly the same market that you might remember from 2019.

“We saw an increase in single-formation households during COVID,” he says. “There were about 40,000 more than normal in a year. So, there was more demand from that perspective. In many coastal regional areas, a high proportion of investment properties were sold to owner-occupiers. This expansion and realignment of the population into regional centres, or places with smaller population catchments, put more pressure on property. Now, the sheer movement of population, combined with increased immigration, means that there are significantly low vacancy rates everywhere. It also means rents are up anywhere from 10 to 30% over the last 12 to 18 months. That has meant investors have been able to hold their investment properties while rates are rising.”

Investors’ market

The market for residential property is generally made up of 30% investors and 70% owner occupiers, the latter of which can be further broken down into first home buyers and those upsizing or downsizing. First home buyers are disadvantaged in the current market because of the difficulty in saving for a deposit, and reduced borrowing capacity due to high interest rates. Upsizers and downsizers are in a better position, and as Julian points out, they are frequently looking for properties with vacant possession so they can buy and sell seamlessly.

“Investors have got a bit of an edge,” he says. “If someone is selling a property with a tenant and they’ve still got six to eight months to run on their lease, it’s not attractive to an owner-occupier. So, that could be an opportunity that sells at a lower price due to less competition.”

He points out that the main reason the property market is holding up better than expected at the moment is because stock levels have gone down significantly. “The competition has cooled off at the moment because stock levels are low. But stock levels are starting to get better. We’ve seen a big lift in March and we expect, as the year goes on, there’ll be a lot more stock out there to choose from and there might not be as many buyers coming through.”

So investors need to be ready. “The best opportunity in the property market is always in retrospect,” says Julian. Added to that is the fact that there are other advantages to investing before the end of the financial year. “There are tax benefits to buying an investment property as well,” says Trevor. “Some clients will decide to pay interest in advance, so they can claim that as an income tax deduction in their income tax return at the end of the financial year (subject to certain criteria being met). That is a possible strategy that can work for people if they are tax structuring, but they need to get advice on their individual situation from their accountant.”

Do your homework

Of course, with all the headlines about interest rates, investment might seem counterintuitive. But the fundamental truth about the property market is, despite fluctuations, it has always been very resilient. “Historically it’s always been a very good asset,” says Trevor. Julian adds, “The key thing is to get to the coalface and do your research. Be across the market and ready to buy so you’re not scrambling when everyone else piles back in when sentiment rises.”

Doing your research entails having a long-term goal, for which you can draw up an investment strategy. “It’s about working out where that set of numbers, growth target, borrowing capacity, cash flow capacity and objectives fits into the property market,” says Julian. “Every state has different price points, different yields, different major projects to tap into. There are definitely windows of opportunity. I would suggest this year is certainly going to be an opportunity for those that are financially viable and ready.”


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