Article published 16 March 2021
Australians love property. Almost seven out of ten of us own our home3, and more than 2.2 million people back it up with a rental property4.
There’s certainly plenty of appeal to an investment property. Tax savings through negative gearing plus ongoing rental income can provide extra cash to help pay the investment loan. Long term capital gains can boost personal wealth.
And right now, the potential returns on a rental property could be extremely attractive.
Double digit returns
The latest figures from CoreLogic show that in February 2021, property values nationally rose at the fastest rate in 17 years, jumping 2.1% in a single month5.
Rents are also climbing in Perth and Darwin where annual rental growth is above 10%6. And CoreLogic believes rental markets across Sydney and Melbourne looks to be turning, with recent mild gains recorded for rents7.
The result is that in some areas of Australia, investors have enjoyed double digit gains over the past 12 months – most notably in Darwin (19.4%), Canberra (14.6%), Hobart (14.0%) and Adelaide (11.8%)8.
Investment lending jumps 23%9
With these sorts of returns up for grabs, it’s no wonder we’re seeing a resurgence of investor activity.
Lending for investment properties leapt ahead 9.4% in January, rising 23% over the previous 12 months10.
What’s driving investor interest?
Dirt cheap borrowing costs are a key factor bringing property investors back to the market. But it’s not just about low rates.
Returns on savings accounts are at rock bottom levels. The sharemarket has experienced significant volatility in the last year, and a number of blue chip companies put a freeze on dividend payments. It all adds up to make property an even more compelling investment.
There are pitfalls to avoid
If you’re thinking about investing in residential property, it is worth stressing that the best returns are often earned over the long term.
As a guide, CoreLogic’s latest Pain & Gain report11 found that among properties resold for a profit in the September 2020 quarter, the median holding period was nine years. Properties re-sold for a loss were held for just six years.
Remember too, rental properties aren’t always smooth sailing. There may be periods when the property is vacant. Or, you could face unexpected repair and maintenance bills. Your personal cashflow needs to be able to handle these possibilities.
We've created a Property Investment for Beginner's Guide which covers everything you need to consider before getting into property investment. Head over there for a complete list of the items you need to consider.