There is no simple answer!
Smart property investment involves identifying assets that offer growth potential coupled with a sustainable level of rental return.
This combination is the basis for long term wealth building.
Australia is a vast country and opportunities exist in different states and different locations within those states. Even within the same suburbs, various types or styles of property present different opportunities.
The best place is the place that meets the investor’s specific situation and strategy.
One thing is for sure, the best place is not necessarily, the place you live in now! Many novice investors make the mistake of assuming that the ‘devil you know’ is the best way to go.
Looking over the back fence of an investment property is not only unnecessary but ill-advised. The investment property is an investment vehicle and should be chosen devoid of emotional attachment.
Concentrating on your work and income earning potential and leaving the management of your asset to a carefully chosen property management professional is the wiser approach. ( the benefit of specialisation is higher productivity)
This is particularly appropriate when you build a property portfolio. The logistics of managing multiple properties is beyond the scope of most people unless it becomes your full-time job!
Choosing a location to invest in ought to be a well-considered decision, based on your situation, budget, goals and time frames as well as an analysis of the demand side drivers and the supply side constraints prevailing in different places at different times.
The factors influencing demand and supply in any location are multi-layered and don’t always conform to textbook models.
Perfect competition requires perfect knowledge. To get the lowest price for bananas, you need to know who is selling them, where and at what cost at any time point in time.
Likewise, perfect knowledge and mobility in the housing market do not exist.
It is unrealistic to expect that the price of accommodation, either house prices or rents will be met with a ‘perfectly elastic’ responses on both sides of the equation.
For example, despite rising rents, families may not be easily mobile across locations in search of lower prices. Access to employment, transport options or the lack thereof, family ties and established links to schools, sporting and friendship groups make moving home tricky. It can also be prohibitively expensive.
Likewise, the timeframes involved in new supply limits the ability of the market mechanism to work as efficiently as it might otherwise.
It’s important to understand that Monetary Policy is what’s known as a ‘blunt instrument’, that is, it affects all sectors of the economy generically and it’s not possible to selectively target just the ones you want to dial down or the ones you want to stimulate.
The effect of macro drivers for demand, such as interest rates is not location-specific. For example, the RBA was not able to increase interest rates in Sydney and Melbourne alone to slow house prices during the past expansion phase without collateral and unintended damage to other property markets. So, while record-low interest rates now are designed to provide a stimulus to the economy and to ‘soften the landing’ of slowing activity, they do so generically.
You can’t assume all markets will grow as a result of increased consumer optimism and confidence – it’s crucial to look at the specifics and to match a location to your particular needs before arriving at a decision.
Knowing your risk profile, assessed borrowing capacity and importantly, your comfort range will be the starting point for establishing your property investment strategy:
Influences on the choice of location include: