Negotiating the property market throughout 2015 wasn’t without its challenges for investors.
In June we saw Australia’s national median house price reach $701,827, an annual growth of 11.7 per cent. Sydney’s median house prices also reached the $1 million mark.
As investors, we were also buoyed by news from CoreLogic RP Data in their September 2015 quarterly review that residential property in Australia was the single most valuable asset class, with a total estimated value of $6.0 trillion as of July 2015.
However, as home values reached all time highs, investors were then faced with the challenge of increased interest rates as a number of lenders made changes due to restrictions the Australian Prudential Regulation Authority placed on banks to hold more capital against mortgages.
As a result of this action and also due to an increase in supply of the number of properties available on the market, during the later part of 2015 we’ve seen falling auction clearance rates. In May 2015, Sydney and Melbourne’s auction clearance rates were sitting at 86.2 per cent and 80.3 per cent respectively. By November, these figures had dropped to 58.4 per cent in Sydney and 69 per cent in Melbourne.
Despite this, Sydney and Melbourne still continue to be the main drivers of home value growth and escalating prices in these cities have meant many investors have turned to other capitals and regional areas which offer affordable entry points into the market.
This has also been reflected by the number of tax depreciation schedules BMT Tax Depreciation have prepared for investors outside Sydney and Melbourne. Regions such as Nowra in New South Wales and Albury Wodonga on the New South Wales and Victorian border saw an increase of 34 per cent and 26 per cent growth respectively in the number of schedules produced over the year.
In Queensland, Redcliff City has seen a growth in the number of depreciation schedules produced of 39 per cent over the year while Joondalup in Western Australia saw an increase of 23 per cent and Alice Springs in the Northern Territory saw an increase of 36 per cent.
Of the capital cities, Hobart is also beginning to see the results of increased interest. During the last year, BMT Tax Depreciation saw an increase of 11 per cent in the number of reports produced for this area and this has also been mirrored by rental yields. According to CoreLogic RP Data’s gross rental yield report for October, Hobart is achieving the best results for investors with gross rental yields sitting at 5.3 per cent for both houses and units.
As traditional investor hot spots change and some areas experience cooling while others become more popular, it’s a reminder for investors to stay prepared for what the market has to offer in 2016. With the hindsight of the lessons learnt during 2015, the following are my New Year’s resolutions as a property investor.
I will go outside my comfort zone
It’s not uncommon for investors to look closer to home when buying an investment property, particularly when it is their very first purchase. However, this can potentially lead to selecting an area due to its familiarity, rather than the growth potential. It is important to seek advice on the historical growth of an area before making a purchase and consider looking at surrounding areas or even suburbs in other states that could provide better returns.
I will not follow the herd
Investors who rush to purchase in hot spots can also be guilty of overlooking other possibilities. Sydney offers a great example of this. While the city has seen a substantial amount of attention from investors in recent years due to price growth, it is important to also look at the rental yields that will be achieved from the property.
The latest data from CoreLogic RP Data on gross rental yields for Sydney shows houses have a rental yield of just 3.1 per cent while units sit at 4.1 per cent. It is important to consider what can be achieved from a property in the long term and all too often investors buy into an area hoping for quick results rather than achieve long term gains.
I will look at the complete picture
When making purchase decisions it pays to have a complete picture of your cash flow. All too often I see investors have done their research to find out what income they will receive, but less rarely will they look at the expenses involved and find out what tax deductions they will be able to claim to improve their cash flow. Knowing what deductible expenses you can claim may affect what property you are able to afford. A tax depreciation estimate can also help buyers to work out the true costs of holding a property.
I will budget now for the future
Often when things get busy, paying attention to your budget can easily get put aside. However, it is important to do regular checks and look for ways you can improve your situation now to benefit you in the future.
When it comes to depreciation, many property investors wait until the next financial year to take advantage of the claims available to them. However, there are ways to take advantage of deductions in your budget now rather than wait. Ask your Accountant to set up a Pay As You Go (PAYG) withholding variation. This allows investors to take advantage of the deductions regularly by having less tax taken out of your wages, rather than waiting until the end of financial year for your refund. It can also enable investors to save for necessary repairs and maintenance, save for a future renovation, or even pay off their loan sooner.
I will learn from the experience
None of us really knows what 2016 will bring. While we can make predictions based on current data and watch interest rates to see if they will rise or fall and try to uncover the future hot spots which will provide the greatest capital gains or rental yields, the market can sometimes behave mysteriously. So, my main resolutions as a property investor are to learn from each experience and to be prepared for what will come.
Every experience you have investing in property can be rewarding in more ways than one and as time go’s by you will adapt to change more easily and be able to use the knowledge gained more effectively to make educated decision.
With the help of the right advice and a few calculated decisions, every property purchase can be a successful one and soon you will see the rewards.
Seasons greetings to all and here’s to a prosperous and fulfilling New Year.