Only one thing is certain about real estate trends: they are always changing!
So if you’ve been away from Australia for an extended period or you’ve just resettled here, there are some things you might have missed in the property investment world.
Keeping up with tax and law amendments is like trying to get a solid footing on sand; it’s always shifting and moving and just when you think you’ve got a foothold, an unexpected change can come along and knocks you off your feet.
Residential property is an incredibly popular investment choice for Australians, so it’s important to be up to speed with the current market and what’s delivering results in property right now.
As your market refresher, here’s a guide to the Australian property market as it stands today.
Around 80% of Australia’s rental properties are owned by ‘mum and dad’ investors.
We also have a decent proportion of tenants, with around 30% living in rentals instead of owner occupied homes.
Around one million investors currently provide accommodation to renters across Australia, confirming that real estate remains a popular investment across the board.
The danger of an escalating industry like property investment is that there becomes a bewildering range of choices, in terms of dwelling types and locations – and many differing opinions on the prospects of long-term success.
Some people predict you’ll achieve better results from inner city apartments and homes located in developments on the city fringe, while others will swear by older homes in established areas of the city.
Here’s my take on things:
Australia is an enormous land mass and yet most of our population congregates around the capital cities in each state or territory.
This is a fertile setting for good capital growth for investments, because there are multiple pillars to the economy of our 4 big capital cities, higher economic growth and therefore higher wages growth as well as continued demand and often not enough supply of property for both owner occupiers and renters in sought-after areas.
A critical decision you’ll make when evaluating property prospects is whether to buy new or established.
Sure new homes or apartments look good and generally deliver better deductions at tax time because there is higher depreciation on new fixtures and fittings.
However, new properties are not always the best choice.
They usually come at a premium price and buyers can end up paying for the developer's margin, marketing costs project marketers fees etc, and often there is lack of scarcity in the large apartment complexes or new estates.
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As new properties are often built in developments and estates, and are mainly bought by investors, the supply may be greater than the demand.
This impacts rental return and can make the task of finding renters all that more difficult.
Worse still, you could find that in the long-term, the property is not enjoying the capital growth you might have hoped for.
Beware of glamorous investment opportunities like "off the plan" proeprties - there is a huge oversupply of these properties already and thousands more coming out of the ground.
This means there will also be too many new apartments in our capital city CBD's - particularly Brisbane, Melbourne and Sydney, which will stunt capital growth and rental growth for up to a decade.
It’s critical to find a knowledgeable financial advisor who knows the ins and outs of tax implications around holding and exiting a property.
While there may be some tax benefits to making an on-paper ‘loss’ on a property with negative gearing, as you can claim the loss portion as a tax deduction but of course if you plan to disappear overseas again on another expat adventure, these tax benefits will be lost.
Remember – negative gearing is not an investment strategy.
It's a consequence of how you fund your property, as you probably know - in my opinion to me, your chosen investment strategy should be capital growth.
On the flip side, if you make a profit on your investment, you will be taxed on the profit portion as you would a regular income from your job.
Again depending on whether you plan to continue living in Australia or whether you’ll head overseas could influence the true value and tax implications of this cash flow.
Ultimately, a property’s success is based largely on the type of asset you own, it’s suitability to the local market and its location.
As a general rule, you should search for properties where demand is high and supply is limited, as this encourages the healthy capital growth that you want to see.
Be sure to always check the latest laws in regards to non-permanent residents and what types of assets are legally available.
Finally, if you plan on traversing different cities across the globe as an expat traveller again in the near future, seek advice from a finance and investing professional to ensure the property you buy will suit your budget and your wealth creation goals, now and in the future.