Simon Pressley reveals where he would invest $10k
October marked the two-year anniversary of the start of the second biggest national property boom in Australia's 230-year history.
All at the same time for the first time since 2003, property prices are increasing in each of the eight capital cities plus the 200 individual regional cities and towns.
To put the current property market pressure into perspective, the 215,911 properties that were listed for sale across Australia at the end of August were 39% less than at the same time eight years earlier, yet the national population has increased by 2.5 million over that period.
Reserve Bank commentary suggests that record low interest rates are likely to be with us for many years. The reduced cost to service mortgages is likely to underpin a higher than normal volume of buyer activity for years to come.
Property markets have a rock-solid floor, supported by an unprecedented amount of economic stimulus and infrastructure investment, combined with Australians collectively holding $230 billion more in their bank accounts than they did before COVID.
I expect the markets of many towns will enjoy a cycle that will produce capital growth rates of between 70% and 100% across just five years.
Investors can also look forward to the best era yet for real estate cash flows. Seriously low investor participation rates during the five years directly before COVID arrived has resulted in grossly insufficient rental supply. Accordingly, household rents are now soaring everywhere other than Sydney and Melbourne.
At the coal face, our buyer's agents have already seen weekly rents for standard houses increase by $100 or more per week over the past two years. The best capital city property market fundamentals right now are in Hobart, Canberra, Brisbane and Adelaide. But to find the absolute best opportunities, investors need to ignore the mainstream rhetoric and focus their attention on regional Australia.
Over the first 12 months since COVID arrived Down Under, the population of regional Australia increased by 51,200 while the combined population of Australia's eight capital cities declined by about 17,200.
Economic growth in large parts of regional Australia was already superior to capital cities well before COVID. It's the primary reason 58 of the top 60 highest rates of capital growth of the past five years were in the regions.
Post-COVID, there's a stronger appetite for space, outdoor activities, nature and reduced congestion. And the groundswell of people who have elected to embrace the work-from-home lifestyle opportunity (including yours truly) now have the ultimate freedom of being able to live wherever their heart desires while taking their job with them.
Rising tides lift all ships, but all ships aren't made equal. The smart property investors won't buy a rubber dinghy.
The current population, economic and housing supply trends of Sydney and Melbourne are like water, oil and flour - not a good mix.
Their population has swung from a combined annual growth of 190,000 two years ago to a combined decline of 56,000 over the first 12 months of Covid. Official data already confirms that both cities lost 32,000 people (net) to internal migration.
The combined rental vacancy in Sydney and Melbourne at the end of August 2021 was a whopping 42,142. Conversely, the combined rest of Australia had only 16,714 dwellings for rent.
And the unintended "legacy" of living in lockdown for longer than all other Australian locations will be thousands of business closures, even more jobs lost and local economies that will struggle for many years to come.
Perth's unhealthy economic reliance on Chinese demand for iron ore is something to also be wary of.
In all locations, there is an enormous body of evidence against investing in apartments. Don't say you haven't been warned!
Where I would invest $10k
One must always be mindful of one's limitations. I'm a professional property investor and I won't pretend to be an expert on other asset classes.
There's obviously not a great deal of options for $10,000 in real estate, so my initial goal would be to build that $10,000 up to about $70,000 as quickly as I could.
I would then use the money to cover a 10% deposit plus acquisition costs to purchase an investment property for $400,000. I'll back Propertyology's ability to find a detached house in a location that has strong growth drivers and is cash flow neutral from day one.
The question is what to do with the $10,000 until then?
If one has an existing non-deductible home loan, I'd consider placing the $10,000 in a mortgage offset account. There's arguably never been a better time to aggressively pay down non-deductible debt.
And with property markets already booming, one may have acquired enough equity to raise that $70,000 inside 12 months.
Other than that, I'd consider spreading the $10,000 across three or four stocks. I'm a huge advocate of diversity - maybe Qantas, Woolworths, BHP plus a renewable energy stock. I'd also consider investing in gold.
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