Property Investment in Australia: A 2024 Guide Real Estate

Owning Property Investment has long been known as the Great Australian Dream, but recent research confirms what many suspected: it’s not just a dream; it’s become an obsession. According to HSBC Bank’s 2019 research, Australians dedicate an average of 2.5 hours per week to property-related activities—more than double the time spent at the gym (1.08 hours) or talking to their parents (0.88 hours).

Property Investment in Australia

With the total value of residential dwellings in Australia increasing by $140.0 billion to $9,874.7 billion in the March quarter of 2023, it’s evident that this obsession has transformed into a popular method of building wealth for Australians, even with a market decline from the record-high figure of $10.14 trillion in the following year’s March quarter.

Despite a dip in the market due to the Reserve Bank of Australia’s interest rate hikes, recent data from the Australian Bureau of Statistics in August showed new investor mortgage commitments rising to 35.3%, the highest level since 2017.

Adrian Kelly, immediate past president of the Real Estate Institute of Australia, suggests that many Australians still consider the property a “more stable life raft” than the turbulent stock market. This perspective gained traction after the stock market collapse in the early 2000s.

Post the Global Financial Crisis (GFC), the belief in a stable Property Investment market gained strength as Australians and the RBA recognized the role of housing and housing finance institutions in preventing future crises.

This perspective, however, raises concerns among younger buyers and policymakers who argue that generous tax breaks for property turn a basic necessity like shelter into an unaffordable, speculative asset class. Many baby boomers, unable to fully benefit from the superannuation scheme introduced in 1992, claim they invest in property to compensate for a lack of retirement funds.

Nevertheless, an increasing number of Australians are embracing the wealth-building potential of property. Here’s what you should know before entering the arena.

The Pros of Investing in Property

1. Low Barrier to Entry

Property is often perceived as a lower-risk investment than others, primarily because it doesn’t require specialized knowledge like NFT trading or cryptocurrency investment. It offers benefits such as capital gains, rental yield, and tax deductions, discussed below.

2. Capital Growth on Property

Capital growth reflects the increase in the property’s value over time, calculated by comparing the current market value with the initial purchase price. Australian property investors have historically enjoyed high capital gains returns, as reported by the latest CoreLogic Pain & Gain report.

3. Rental Yield

Rental yield, providing more immediate rewards than capital growth, represents the difference between tenant income and overall investment costs. A good return for an investment is generally considered to have a rental yield between 6-11%, varying by state.

4. Investment in a Physical Asset

Investing in property offers the advantage of a tangible, physical asset. Unlike shares, investors can see and control their investment, providing confidence and control.

5. Tax Deductions

Renting out a property allows for deductions on incurred expenses through negative gearing. This tax break, introduced in the ’80s, stimulates construction and supports the growing population.

Cons of Property Investment

Despite the perks, potential investors must consider the downsides:

1. Difficult—and Costly—Entry and Exit

The property market demands substantial entry costs, including stamp duty, legal, and real estate agent fees. Unlike shares, selling a property quickly for cash is not viable.

2. Fluctuating Property Market

While not as volatile as the stock market, the property market still experiences fluctuations. Investors may witness their property’s value move up and down over time.

3. Need to Find Tenants and Property Managers

The rental yield comes with challenges, such as finding consistent tenants, management costs, and the need to cover mortgage costs during vacancy periods.

What Type of Property Makes a Good Investment?

1. House vs Apartments

The choice between investing in a house or an apartment depends on the investor’s intentions—whether for capital gains or rental yield.

2. Owner-occupied or Rental Properties

Investors aiming for capital gains may choose to live in the property, while those focusing on rental yield would opt for tenanted properties.

3. What Suburbs Are Best?

The ideal suburbs for investment vary based on individual circumstances and goals. Research is crucial considering factors like proximity to the CBD, schools, transport, and local amenities.

Income and Expenses$
Rental Income$2,350
Less Loan Repayment-$2,825
Less Allowance for Expenses-$325
Less Strata Fees-$316
Less Allowance for Repairs and Maintenance-$600
Monthly Shortfall-$1,316

What to Avoid When Investing in Property

Investors should avoid cutting corners and conduct thorough research, seeking advice from financial planners, mortgage brokers, and real estate professionals.

How Much Can I Borrow?

To determine borrowing capacity, consult with a bank or broker. Borrowing for investment involves risks, and it’s essential to weigh the potential losses and higher interest rates.

The Costs of Investing in Property

Investing in property incurs various costs, including stamp duty, conveyancing fees, property inspections, and ongoing expenses such as council rates, insurance, and maintenance costs.

In conclusion, while investing in property offers potential rewards, it’s crucial to conduct thorough research, seek professional advice, and consider personal finances before entering the property market. Despite a temporary downturn, the Australian property market has shown signs of recovery in recent months, emphasizing the need for careful consideration.

Q: What makes property investment in Australia a popular choice?

A: Australians often view the property as a stable investment with potential for capital gains, rental yield, and tax advantages.

Q: How has the market trended in recent times?

A: Despite fluctuations, recent data shows a resurgence in investor interest, with new mortgage commitments reaching the highest level since 2017.

Q: What are the advantages of investing in real estate?

A: Benefits include a low barrier to entry, potential capital growth, immediate rental yield, tangibility of a physical asset, and tax deductions through negative gearing.

Q: What challenges are associated with property investment?

A: Challenges include substantial entry and exit costs, market fluctuations, and the need to manage tenants and associated costs.

Q: How do I calculate the costs of investing in property?

A: Costs include stamp duty, conveyancing fees, property inspections, and ongoing expenses such as council rates, insurance, and maintenance. Consulting with experts helps in understanding the full scope.

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