The potential tax benefits and wealth generation make real estate an attractive investment option for many Australians, but it is not without any drawbacks. If done right, investing in property can be an effective way to build wealth and secure your financial future.
The drop in demand from first-timers in the property market means there's less competition right now. This coincides with falling property prices. The Domain End of Year Wrap 2022 shows house prices nationally have fallen 4.9 per cent from the March 2022 price peak, down about $53,000.
Nationwide prices are expected to rise by approximately 2 per cent by the end of 2023. However, as the RBA potentially cuts interest rates before the end of 2023, demand pressures will contribute to a favourable environment for property prices.
“We tend to weather recessions better than the rest of the world, and we have strong employment and growth, as well as a rising population and a shortage of homes. So, we see good opportunities for investors in 2023.”
IBISWorld forecasts residential property yields to rise by 0.60 percentage points in 2022-23, to 3.03%.
Australia's property market is considered to be among the most expensive in the world, with Sydney and Melbourne regularly featuring among the list of least affordable housing markets, along with some US and Canadian cities. One measure of affordability is the household debt-to-income ratio.
To determine whether a property is a good investment using the 2 per cent rule, simply multiply its purchase price by 0.02. For example, if you're going to purchase a property valued at $200,000 then the monthly rent should be at 4,000 or more to meet the parameters of the 2 per cent rule.
"Property price falls are likely to continue and accelerate in 2023," report author Cameron Kusher said, blaming the cooling market on the rising cost of borrowing and its associated drain on household budgets.
Land Investments Are the Best to Make Money Safely
Selling the land you own is the simplest way you can make money. The land is always a profitable investment as you can make money off it quickly. You can either sell your land, use it to grow crops, use the land as boat storage, or lease it out.
According to Realtor.com's research, listing your home the week of April 16 through April 22, 2023, is the best timing for a successful sale. Realtor.com even predicts that listing your home between April 16 and April 22 could get you $48,000 more for your home than you'd get if you listed it at the start of the year.
If the price rises are maintained for the rest of the year, home values will end up about 4% higher in 2023, defying earlier predictions of sharp falls of 10% or more for this year, CoreLogic says. “Economists are shredding their previous price forecasts,” said Sally Tindall, research director for RateCity.
House prices are expected to soften further in 2023 but falls may not be as severe as some expect if the RBA stops increasing rates before the cash rate reaches 4%.
au's analysis showed that, even if prices rose at a similar rate to inflation over the next five years, the median house price would still be near $1.5m in 2027.
Westpac has revised its house price forecasts, with dwelling values expected to stabilise in 2023 (initially forecast a -7% decline). National dwelling values are predicted to rise 5% in 2024, up from 2%.
The average annual growth rate for well-located capital city properties is about 7%, which means that Australia's median dwelling price should be around $1.1 million in 2030. But some properties will outperform others by 50-100% in terms of capital growth, so take these house price predictions with a big pinch of salt.
Overall, Westpac has predicted house prices will soar by 5 per cent in both Sydney and Melbourne, prices will jump by 6 per cent in Brisbane and rise by 8 per cent in Perth in 2024. “This shift has come despite further official rate rises in February and March,” the economists wrote.
#1. Farm Land: With the agricultural market increasing, investing in farmland has emerged as a profitable opportunity. Per statistics, farms have an average of 11.5% yearly return. Plus, having your money locked in farmland investment will settle out your risks and will generate a passive income source.
Compared to other investments, land doesn't need much of your involvement. It can be a passive long-term investment for you. What's more, you may be able to buy smaller pieces of land with cash alone. Property taxes, insurance or maintenance costs aren't too high.
The advantages in buying vacant land
Flexibility in what you can do with your land – whether you develop, wait or sell on, it's up to you. Lower maintenance and costs. You won't need to maintain buildings or pay a property manager unless you choose to develop your land.
Sydney house prices may be expensive now but they could pale in comparison to what future generations will pay. Analysis of housing trends revealed Sydney house prices will average nearly $1.8m by the end of the decade, up from $1.06m currently, if they continue rising at the same pace as the last 30 years.
The OECD's stark warning of a “rout” in house prices that ripples across the entire economy has raised the spectre of the crash of 1987.
Zillow predicts that home values will increase by 3.5% in 2023, 3.4% in 2024, 3.3% in 2025, and 3.2% in 2026.
The 1% rule of real estate investing measures the price of the investment property against the gross income it will generate. For a potential investment to pass the 1% rule, its monthly rent must be equal to or no less than 1% of the purchase price.
1.6% of Australians own 2 investment properties.
Rule Example
If a property is for sale at $500,000, the 1% rule means that the monthly gross rental income should be $5,000. The main goal of the rule is to ensure that an investor will break even or make a profit from the property. Generally, the 1% rule is a pre-screening or short-listing tool only.