Searching for the next investor hot spots?
The Australian property markets find themselves in an unprecedented quandary with record low cash rates that have driven investment property prices in Sydney and Melbourne to record levels. The problem as I see it is that it is highly unlikely that such dizzy heights can be maintained, so that said one can assume that prices should start plateauing. The problem with that scenario is that given the present market conditions this is highly unlikely as property investors are only interested in Sydney and Melbourne real estate.
The owner occupier property market is much slower with stock levels at all-time lows which can be attributed to the fact that businesses are no longer paying cash bonuses preferring to reward staff with shares. What this has done is take billions of dollars from the owner occupier property markets which explains in principle why the owner occupier markets are so slow.
Nobody can really explain why property investors are only interested in Melbourne and Sydney especially when Australia is experiencing an unprecedented population explosion. This becomes even more confusing when we hear that Australia’s east coast is the destination expected to feel the full brunt of this population explosion.
This year I have been in dialogue with Richardson & Wrench Projects where I have attended some information seminars to learn more about this fascinating investor market. The problem with real estate agents is that our knowledge is always contained within a particular postcode, hence a reluctance to look outside our comfort zone which is the very same mindset as property investors.
So the first question I wanted to know was where are the next best areas to invest outside Sydney and Melbourne, that are more much affordable with strong capital growth, excellent rental returns and with strong depreciation allowances. My question was answered immediately with two areas – Newcastle and Brisbane – well, that makes sense as they are both on the east coast with strong population forecasts.
With that in mind it was off to Brisbane to have a look around and see just why Brisbane is considered the next area to chase property investor returns. The first thing you notice is their road infrastructure is superior to Sydney’s with nowhere near the traffic congestion. Just like what we are now seeing with NSW where government is now on a record infrastructure spend, although in NSW we keep adding a new lane to infrastructure that was only constructed ten years ago. The government has allocated a further 120 billion dollars for infrastructure over the next three decades.
A new international airport and the big star attraction is the new Las Vegas style $4.000 billion casino – in many instances the South Bank area (which is the area I liked the most) reminded me of what’s happening at Barangaroo on Sydney Harbor. Although at a fraction of the price.
One of the most interesting points that really resonated with me was that the Richardson & Wrench Projects team told me that they actually reject 90 per cent of projects that fail their strict criteria – which was evidenced in their project investment reports which are about sixty pages of research data. Investors in Sydney and Melbourne usually get a one or two page report if they are lucky which always have the usual disclaimers.
So what happens to the ninety per cent of developments that were rejected was my next question? Well, they lure those unsuspecting property investors and stitch them up which explains why property investors stick to the areas that sit well within their comfort zones – even though they know they are paying top dollar.
Australians love investing in property which explains why so much is written about bubbles, crashes and fear factor frenzies. So if you are contemplating stepping out of your comfort zone and looking for an investment area to watch closely we would recommend Brisbane – it’s a very interesting…