Purchasing off-the-plan has become a very popular way of securing a property
Investing in real estate
Residential real estate underpins Australia’s wealth position. Residential property in Australia is the nation’s single largest and most valuable asset class with a total estimated value of $5.5 trillion as at July 2014. The value of the residential property is significantly larger than the value of listed equities ($1.6 trillion), Australian superannuation ($1.8 trillion), and commercial real estate ($0.7 trillion).
The national data shows that there is a clear growing appetite for higher density approvals which indicates that buyers are
becoming more accepting of apartment living. If we look at apartments, they typically offer a significantly lower buy-in price than houses in a comparable location and they allow the purchaser to live, in many cases, in a more desirable inner-city location at a more affordable price.
Investing in real estate and purchasing a property off-the-plan has become a very popular way of securing a property in a growth area before it’s even started. The demand for apartment living in the market is thriving across Australia, particularly in Brisbane, Melbourne, and Sydney. More of Australia’s GDP is coming from knowledge-intensive industries and services.
These types of services are within or in close proximity to our major CBD’s. This in turn produces its own economic dynamic of attracting more talented workers to these areas. As Australia’s intensive-industry labour force strengthens it positively correlates with higher demand for properties in appealing city areas igniting a demographic shift towards city apartment living.
There are trends in the Australian economy that will help real estate investors pick up great property bargains. The first trend is the changing structure of our economy. For the first half of the 20th century, agriculture was the main driver of the Australian economy. Then, after World War II, manufacturing became a big factor, employing one out of every fourth worker. There are now rapidly changing emerging trends that every real estate investor should become aware of.
According to a study published last month by the Grattan Institute, there are new ways to earn a living as more of the Australian Gross Domestic Product (GDP) is coming from knowledge-intensive industries and services. These types of products and services are centered in and around our major cities. Specifically, they are found in the central business districts and other business centers.
This in turn produces its own economic dynamic of attracting more talented workers to those areas, leading to even greater productivity which attracts more talented people and higher wages. All of these factors related to knowledge intensive-industries lead to higher demand for properties in those areas. Of course, it’s no secret that property values in the cities have increased quite significantly and property prices in the suburbs are also rising.
Demand for properties in these areas will continue as long as supply remains so low.
The rise of teleworkers
The second big trend that is part of the knowledge-intensive economy that is driving the economy according to the most recent issue of the Australian Bureau of Statistics (ABS) Business Use of Information Technology (BUIT) is the rise of the Teleworkers. Their presence is becoming a very big part of the knowledge-intensive economy in Australia. More and more workers in the knowledge-intensive industries are not actually driving into the cities to work. They are working from home working online
The latest surveys tell us that more than 75 percent of larger businesses in the capital cities areas now use the internet for teleworkers and even more than a third of the micro-businesses use the internet to allow their workers to work from home.
Which is an 8 percent increase over the past two years alone. The trend shows that the number of teleworkers is on the increase, especially within the next few years. That means more workers in the knowledge-intensive industries and services will be looking for housing. However, this does not necessarily mean that outer further areas outside the central business districts will not be just as popular as a Teleworker does not have to face the daily grind of commuting to and from work. The advantage of Teleworkers is that they can station themselves anywhere outside the CBD’s or neighboring suburbs.
That is ”anywhere you lay your hat is your home, or work place”. Allowing for these trends the property investor has options to purchase either within the CBD’s or further out. The buying options will really depend upon the buyers needs and financial capacity or restrictions. Generally, an investor should not buy too far away from the working hubs as even the Teleworkers may need to drive into the office every now and again to meet a client or attend company meetings.
The Teleworkers are generally paid very well to work in knowledge-intensive industries from home. In fact, 80 percent of Australia’s GDP is derived from just 0.2 percent of the land in the entire country and that land is in and around the major Australian cities. When both these trends are combined, along with the billions in new roadways and other infrastructure that is now underway and will continue over the next decade. Expanding communication and transportation corridors and linking more of the outlying areas to the cities.
These trends show that areas outside the current suburbs of the capital cities will also be in high demand by highly-paid teleworkers and mobile workers. These opportunities should be embraced by real estate investors.
Choosing properties that are as far as 15 to 20 kilometers or even 25 kilometers outside the business centers of capital cities can result is great buying opportunities. Because the power and impact of these trends on the economic growth of the country cannot be overstated. The way Australians work is changing and evolving bringing unprecedented opportunities to investors.
Buying a New Property
There are always advantages in buying a new property, especially within an investment context. However, there could also be some associated risks.
Some of the advantages of buying a new property for investment are the tax depreciation benefits as you can deduct 2.5 percent on the building construction costs component for a 40-year period. This can mean an extra $10-20k or more (depending on your income level and loan borrowing amount) in tax deductions resulting in reducing your tax liability. Therefore, buying a brand new property does provide significantly more depreciation benefits than buying well-established investment properties.
From a tenant’s perspective leasing a new property is always seen as the ideal setting to start a new lifestyle. A new property is relatively easier to rent out due to its perceived new fixtures and fittings which are usually better situated within amenities and infrastructure. Also from an owner’s perspective, there are fewer issues reported from tenants in terms of leaking roofs or walls or floors to breaking down of appliances such as kitchen ovens or laundry dryers. Therefore there are lower managing and repair costs incurred by the owner (and the strata itself).
From an investor’s perspective buying a property is about maximising capital growth and maximising cash flows and lowering managing costs and operating costs it’s basically just like running a business.
The are of course some associated disadvantages in buying new property as well… it could be considered to be more costly or overpriced due to integrating current construction material costs and other new technologies and appliances. This is also due to land prices being very expensive as new properties come at a premium due to the fact that desired suburbs are located close to or within our capital cities and developers pay a premium for land for re-development purposes due to its relatively short supply. New properties most always have higher strata levies due to housing new facilities such as elevators, swimming pools and gymnasiums.
Another major disadvantage is that not all developers are created equal. That is, some new properties may not be built to high standards or come across to be poorly built due to developers using poor quality materials. This is the main concern, especially when buying off-the-plan – hence it is critical to research the developer or the builder and their past projects.
You should stay away from developers offering you rental guarantees. This is a classical way to entice buyers into a project that may not generally sell easily to the public for many reasons, perhaps, poor location or building quality.
Deciding on what type of property one should buy always depends on the individual’s circumstances such as the financial capacity and long terms objectives.
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