CITYLIFE INVESTOR NEWS
The Australian Investor and Property Buyers
Newsletter
12 Febuary 2009
12 February, 2009
In this issue:
1. Highest rental yields ever seen in Sydney
2. Why Australians keep buying property
3. Investor interest increasing in 2009
--------------------------------------------------------------------------
1. Highest rental yields ever seen in Sydney
The writer of this newsletter has been in the Australian real estate business for over 25 years and can never remember seeing rents, relative to purchase price, as strong as they are now in Sydney. Sydney now has some of Australia's strongest rental returns.
RP Data's figures are showing apartments yielding an average of 5.74% gross now in Sydney. It is important to remember that this is for the whole spectrum of returns, and has never been seen before a new build property. Old rundown properties that are traditionally cheaper have generated 5.5 to 5.7% returns in the past, with new properties traditionally showing 4% to 5%.
With current rent returns for new property between 5.5% to 6% in Sydney, and the cost of borrowing dropping to below 6% towards 5% and 4%, no doubt that this is a good time to buy before prices jump again.
Loans to first home buyers surged in January as lower interest rates, cheaper houses and boosts to the Federal Government's grant made owning property more attractive, a leading mortgage broker says.
Mortgage sales to first home buyers rose 25.8 per cent in the month, from 21.2 per cent in December.
It marked the sixth consecutive monthly rise in since first home buyers accounted for 10.6 per cent of sales in June 2008.
The outcome is the best since Australian Financial Group (AFG) started collecting the data, general manager of sales and operations Mark Hewitt said.
2. Why Australians will keep buying property
This is a little-known concept particularly amongst overseas investors, but helps explain why Australians have done so in the past, and will continue to keep buying property through all the economic cycles.
In its most simplistic form, new build apartments offer enormous tax benefits to Australian residents, in many cases up to 60% of the purchase price. Without going into complicated tax calculations at this time, what it simply means to an Australian property investor can be summarised as follows:
Example Cash Flow: Typical Sydney or Melbourne apartment (current figures).
Apartment purchase price, say, AUD $550,000.
75% loan, interest payments current ($413) per week.
Rental income (Sydney), $620 per week
Surplus $207 per week
And here is the Kicker:
An Australian tax payer can get each week a tax refund of around $90 per week.*
Total cash flow positive $90 plus $207 equals $297 per week (note typical management fees and outgoings on apartment like this would be around $130 per week, meaning that net income to the investor is around $167 per week).
In other words, once an Australian investor has laid down his deposit, not only is the property completely self funding, and would become so even more if interest rates fall further and rents rise, but the Australian investor could also receive a positive cash flow plus a tax refund.
This reduces the amount of tax out their personal salary each week, increasing the take home pay.
Combined with the potential for capital growth over the next two to five years, and the market is definitely set for a flood of new investors.
John Edwards, M.D. of the property research firm Residex, agreed that ' is there is real activity now from the investment community, which will soon see translated into a lot more sales ' as conditions are now perfect for purchasing. Mortgage brokers are churning out many pre-approvals as investors take steps to ensure they have loans in place, so they are ready to jump in.
(If you would like to arrange your own no obligation pre-approval, at no cost or charge, simply register here: www.citylifeproperty.com/s_mortgageapp.asp)
(*Tax refunds will vary depending upon the taxpayers personal tax rate, salary, number of properties and circumstances, and could be higher or lower than shown. For illustration purposes only, not to be construed as tax advice. Seek professional advice)
3. Investor interest already strong in early 2009
Continuing falling interest rates through 2009, high rental occupancy rights and rising rents is expected to see the current resurgence of property investors we are seeing now increase through 2009.
The Citylife Property Group has had more enquiries for new property investments in Australia over the last three weeks, than at single three week period for the past 5 years. With employment rates still currently over 95% and expected to remain well over 90% through the next two years, there are little alternative investments available for those with secure employment and a cash deposit, or equity in existing property.
Property is now one of the main areas that could offer investors real prospect of wealth creation moving forward.
While it is well-known about the magnitude of funds and stock market crashes over the past 12 months, the average Australian house price has held up and nationally is down by just 2% from last year.
With many properties now looking cash flow positive, for one of the few times in Australia's history, and with many Australian investors able to achieve an additional $50-$200 a week reduction in their personal tax by buying an investment property, there is expected to be a significant shift in sentiment towards Australian property investments during 2009.
Whilst some investors may still sit on the sidelines waiting (hoping?) for a crash, what is already becoming clear now is that prime locations are holding up, and places such as Sydney that have that last peak in 2003 and have not seen growth since now represent outstanding buying opportunities. Melbourne also offers opportunities especially for off plan properties with long completions.
Heavily "discounted' properties that some are looking (waiting?) for in Australia will be mostly projects built in hard to get to places, towns without direct air links and other basically second rate locations.
Contrast this with prime locations in Melbourne and Sydney, with a massive shortage of new property, where values remain strong and rents even higher, where there are height restrictions, a shortage of supply and a rising population, and a long term property investment should still do very well for investors buying in 2009.
------------------------------------------------------------------------------
Copyright 2009 The Citylife Property Group. All rights reserved.
~~~~~~~~~~~~~~~~~~~~~~~~~~~
Own an investment property already? Need the best PROPERTY MANAGER? Here is Citylife's recommended Property Managers, Australia wide:
www.citylifeproperty.com/pp_34.asp -------------------------------------------------------------------------------
Off plan properties for sale: www.citylifeproperties.com
-------------------------------------------------------------------------------
Looking for a Mortgage? www.australianmortgageinfo.com -------------------------------------------------------------------------------
Contact Us: If you have specific requirements, wish to ask any questions relating to your personal situation, or have any questions, email us direct at info@citylifeproperty.com
If you have received this mailing in error, or no longer wish to receive any further newsletter mailing from us, please click here.
-------------------------------------------------------------------------------
This message and any attachments may be confidential and/or legally privileged. If you received this message in error, please do not copy or distribute it. To the extent that this email contains information for investors Citylife does not warrant that it is accurate or complete and no responsibility or liability is accepted for the consequences of any actions taken on the basis of this email. Information provided is of a general nature only, and investors should seek their own advice.
| 