Looking North for Value
With daily reminders in the press regarding record numbers at auctions in addition to continued dire warnings of an SMSF investment fuelled property bubble, it can be hard to know where the underlying value lies for investment in today’s heated property market.
As long term residential property buyers, our purchase criteria is firmly placed on what we like to term ‘true value’ for a well managed property investment. To put it another way – we like properties that are underpinned by the real economy.
So what comprises ‘true value’ for a residential property investment?
One consistent market measure would be existing rentable property, in known or future growth suburbs, that can be purchased on a conservative lending ratio of 65% and interest payments sustained via the fair rental and low vacancy rates.
These measures require attention to long term employment trends, demographic changes, population and economic growth, accommodation supply and rental vacancy rates – all of which figure high on our priority list. You will note that none of these mention money supply, SMSF’s, investor demand, first homebuyers, rental guarantees. Off the plan tax advantages or ‘boom’.
Sales examples such as occurred last weekend in Surry Hills Sydney where a modest single fronted terrace changed hands above
$1 million fall well wide of Portfolio’s property investment benchmarks and apart from being extremely positive for those many clients we placed into this suburb some time ago – we would have to conclude inner Sydney is in boom, if not bubble.
The same may be said of Melbourne (because of the shortage of houses in selected inner suburbs) where vacancy rates are very high due to the current accommodation oversupply in high-rise apartments.
So what to do, where to find value and why?
Right now – Brisbane appears to be the answer. Here is a city that for one reason or another (floods, state politics and patchy economic management) has lagged the growth of its two eastern city capital cousins Melbourne and Sydney.
Queensland tends to experience a net inflow from most other states, particularly NSW & Victoria and while net interstate migration is very cyclical ebbing and flowing with the economic times and house price relativity across the states. In the 2012 -13 financial year growth in resources investment in Queensland underpinned increased migration inflows. At the same time Queensland’s house affordability is combining with improvement in economic and employment growth relative to other states to give us a short window of opportunity. Meanwhile statistically, natural increase is also showing up as a major contributor to Queensland’s growth.
Population projections such as these encourage us to take a long term view of Brisbane growth prospects and with vacancy rates at a healthy 1.7%, returns on the right investment properties in the inner city ring seem assured.
At a conference in Brisbane last week Bis Shrapnel’s Frank Gelber predicted boom times for Brisbane suggesting that people employed through the mining sector including software supplies and business services that are currently not getting enough work, “will be running ragged by this time next year”. “Investment in Queensland property will be a primary driver of growth and go off the scale… said Gelber and went on to predict that house prices in Brisbane are set to rise 20% in the next three years.”
If you would like to know where we are currently buying in Brisbane and why please call Jock Bing or Phillip Almeida on 03 9621 1044 or contact us by email via the Website www.portfolioms.com.au.