Savvy investors are leaving the volatility of the share market behind and looking to plough their hard earned into property in a post-pandemic bid to grow their money.
Unaffected by likely rate rises in the same way as owner-occupiers are, spurred on by record low vacancies and the relative value on offer in some markets, B Street property specialists note that investors have come roaring back after years of retreat.
According to the latest Australian Bureau of Statistics figures, new loan commitments to investors in January were up by 68 per cent year-on-year. Commitments to investors now account for around one third of all new loans, a year ago that figure was around one in 10.
And in contrast to the often misheld stereotype of the investor as a greedy slum lord, the majority of Australian property speculators are mum and dad trying to get ahead.
“Your average mum and dad investors have been leaving the market alone for the last few years, waiting for prices to stabilise,” First National CEO Ray Ellis said.
“Unit sales have been soft and vacancies are low, so they are looking to snap apartments up, especially in Sydney. Vacancy rates usually hover around two to three per cent, at the moment they are at zero to one per cent, so the opportunity is there.
“And the relative safety of the property market compared to the recent high volatility of the share market has also motivated this investor shift.”
Rentvesting, where buyers purchase in an area they can afford and rent where they can’t, is also increasing in popularity for younger buyers.
New loan commitments for investor housing rose to a record high of $11 billion, in January, according to the ABS.
And many of those investors are eyeing off popular locations in the west, south and north of Sydney, according to realestate.com.au’s list of the top 10 most wanted NSW areas for investors.
Cronulla, Manly, Mosman and Parramatta feature on the list alongside the most wanted locale of Wollongong, which is commuting distance to Sydney.
Sea-change and treechange locations Port Macquarie and Tamworth are also on the list as are Orange and Foster, whose appeal could also be as short-term rentals.
The top 10 rankings are based on the level of realestate.com.au search activity and inquiries from investors.
The high yield on offer in regional areas is often the lure for investors, while properties in the metro areas can offer more in terms of long-term capital growth. However in many metro areas, yields are expected to be on the up given the low vacancy rate.
PropTrack director of economic research Cameron Kusher said investors showed a greater preference for units in built up areas while in smaller regional centres like Orange and Tamworth, investors inquired more about houses.
“In those regional townships there is more rental demand for houses and that’s why people are targeting those property types,” he said.
While the treechanger movement was largely responsible for increased rental demand in regional areas, Mr Kusher said he expected a strong shift back to Sydney this year as events returned and workers came back to the CBD.
“I wouldn’t be surprised if over the year we started to see more investor interest moving back into Sydney and maybe out of some of these regional markets,” he said.
Buyer’s agent Michelle May said it wasn’t surprising that so much inquiry had gone to regional areas following the exodus from inner-city areas during Covid.
“The yields are simply not there at the moment for areas within 10km of the CBD,” she said.
But while yields have been strong in regional areas during Covid, Ms May questioned how they would stack up as more renters returned to Sydney.
She said investors looking at regional markets should consider the bigger picture and “proceed with caution.”
“Do your research,” she said.
“Understand there are peaks and troughs and know what the rental yield was three years ago, because it’s probably going to go back there.”
WHAT IS RENTVESTING?
Jordie Wilson and her partner Sam could not afford to buy where they live in inner city Sydney.
But the young couple, like so many priced out of their local property market, turned to rentvesting, a tactic where buyers purchase in an area they can afford and rent where they can’t.
Just last week, the couple, who work in technology sales, settled the contract on their first investment property in the sought-after Brisbane suburb of Bardon for $1.15 million.
“Sam’s family is from Brisbane so he knows the area well,” Jordie, 26, said.
“For our budget in Sydney we were looking at a one-bedroom apartment so we got more bang for our buck in Brisbane.”
They engaged BuyersBuyers, a buyers agency in Brisbane, to assist with their purchase, with the couple buying a three-bedroom, two-bathroom house in the leafy suburb with their first offer.
“We are rentvesting but might move to Brisbane in the next 5-10 years if we decide to start a family,” Jordie said.
“For us, we have the option to work remotely so it is a good feeling knowing we have that option available to us.”
Ms Wilson said hiring a buyers agent was “very helpful” as they were based in Sydney, alleviating concerns about buying sight-unseen.
She said Sam saw the property for the first time only recently, and she would see it this weekend.
“It seems that a lot of Brisbane property is selling before auction or off-market so it is like a full-time job just trying to stay on top of it,” she said.
“Everything is under contract really fast. Having someone there who could negotiate for us was great.”
The median house price in Bardon is $1.51 million, with values soaring 31.9 per cent over the past 12 months.
The median asking rent is $705, with a gross rental yield of 2.43 per cent.
Ms Wilson said the rental yield in Brisbane was attractive, but it was the potential capital growth that sealed the deal.
“The property is rented and we are lucky to have tenants there until August, at least,” she said.
The couple currently live in Surry Hills in Sydney, where the median value is $2.05 million for houses and $945,000 for units.
TOP AREAS IN NSW FOR REAL ESTATE INVESTORS
Suburb/area unit or house median price rental yield
1. Wollongong; unit; $650,250 median price; 3.94 per cent rental yield
2. Port Macquarie, unit, $535,000 median price, 4.73 per cent rental yield
3. Tamworth, house, $419,500 median price, 5.15 per cent rental yield
4. Orange, house $639,000 median price, 4.37 per cent rental yield
5. Cronulla, unit, $959,000 median price, 3.15 per cent rental yield
6. Port Macquarie, house, $820,000 median price, 4.07 per cent rental yield
7. Manly, unit, $1,800,000 median price, rental yield, 2.67 per cent rental yield
8. Mosman, unit, $1,225,000 median price, 2.86 per cent rental yield
9. Parramatta, unit, $610,000 median price, 4.01 per cent rental yield
10. Forster, unit, $530,000 median price, 4.27 per cent rental yield
– Additional reporting Kate McIntyre and Samantha Healy
Originally published as Real estate investment: Top 10 suburbs for property investors in NSW