Property investment in 2021 – how has the landscape changed?
With record-low interest rates, forecast price growth and increasing rental yields, there is currently plenty of upside to property investment within Perth. However, the unique market conditions and surge in demand from prospective buyers are combining to create a unique set of factors that are changing the property investment landscape.
So, how has investing changed in 2021? And what do buyers need to be aware of.
Competitive market forcing buyers to adapt
Perth properties are selling at boom-time levels with low stock levels and pent-up buyer demand combining to create a dynamic and fast-paced market. REIWA data from January 2021 highlights the pace at which the market is moving with the median for days on market sitting at just 21.
The lack of stock on the market is leading to high-quality properties selling quickly, a trend that is especially true for tightly held and established suburbs where owner-occupiers, and recently investors, are competing to enter the market. Momentum Wealth’s buyer’s agents have their ear to the ground and work closely with clients to monitor local suburb conditions. The pace of the market means buyers may need to adjust their negotiation strategies to suit the highly competitive conditions and buyer’s agents are help clients identify which special clauses are non-negotiable, and which ones they may be able to compromise on if it means strengthening an offer.
For potential buyers who are looking to enter the market, these conditions are offering great opportunities to acquire investment grade properties with strong future growth prospects. However, would-be buyers need to be aware that just because property prices are tipped to rise, it doesn’t mean all properties are poised to benefit equally and our buyer’s agents are seeing varied results based on the location of a property. Local market research and insider knowledge are both extremely important when looking to acquire an investment property.
Low interest rates, slow approval times
While many banks are offering record-low interest rates in response to recent moves by the Reserve Bank of Australia, something that hasn’t been as widely talked about are the increased wait times that many customers are now facing. The onset of COVID-19 forced many banks to amend their processes and, combined with the sheer number of applications that the banks are now receiving, some customers are waiting up to 30 days from submission of their application to approval.
This extended wait time for finance approval can pose a problem for buyers, especially in a market as dynamic as Perth. With some properties selling after only one home open, buyers need to be ready to place an offer as soon as they find a property that they are interested in. With the preapproval process taking up to 30 days, prequalification from a lender or broker is a recommended step to help provide clarity to your property searches. Prequalification provides customers with an estimate of their borrowing capacity, and while it is not as formal or as accurate as prequalification, it can allow prospective buyers to begin their property search.
That being said, it’s always more favourable to undertake property negotiations with a pre-approval in place. Buyers looking to enter the market should see a mortgage broker to seek preapproval to help position them strongly amongst other competing buyers.
Rents on the rise
Perth’s median rent is currently undergoing a period of growth, driven by a lack of available rental stock as well as heightened demand. While major property markets on the east coast have seen an increase in inner-city rental stock due to the withdrawal of overseas buyers, Perth’s rental vacancy rate has hovered below one percent for an extended period.
The initial rise in median rent is an encouraging sign for investors that may have decided to sit out of the market until there are signals that we are well past the bottom. Despite these recent price rises, Perth is still one of the cheapest capital city markets within Australia, and this affordability provides investors with the opportunity to capitalise on further rental uplift and the improved yields that come with it. CoreLogic’s December Hedonic Home Value Index Report highlights these strengthening rental yields with Perth recording a gross rental yield of 4.5% compared with 2.9% and 3.1% in Sydney and Melbourne respectively.
For current owners, the strengthening rental market is a welcome sign but not cause to get complacent with your investment. Owners who are looking to maximise their rental yield should ensure their property continues to present well and is in good repair. Despite prices rising, owners who let the condition of their property lapse face the prospect of failing to attract the best quality of tenant, which can be just as important as securing a great rent. Given these changing conditions, it is important for landlords who are re-letting to have a strategy in place to ensure their property remains well priced in the improving market. Owners should discuss incorporating rental increases in lease agreements with their property manager to ensure they are benefitting from the full upswing of the rental market.
For property investors looking to enter the market in 2021, a lot has changed since the last time that you may have purchased property. Driven by low stock and increased demand, house prices in Perth are beginning to rise and the same can be said for the rental market, offering a unique set of conditions that will greatly benefit investors. However, in such a dynamic market it is important to get prepared early to ensure you’re in a position to move on opportunities and maximise the full potential of the improving market. If you’d like to learn more about how the property investment landscape has changed in 2021, request a consultation with one of our consultants.