Buyer insights into Australia’s property market for strata property owners and investors

Buyer insights into Australia’s property market for strata property owners and investors

PICA Group’s resident property market guru Marcus Terry shares insights for strata property owners who are considering purchasing more property

The property market has always been a hot topic in Australia, and it’s only becoming more popular as the days go by. If anything, buying a family home is the Australian Dream.

However, this looks a little different these days compared to in the 60s or 70s. As our cities become more urban, the goal of a house with four bedrooms, a verandah and a backyard is no longer the norm. Many now prefer buying into strata properties. This may be because the community living lifestyle is convenient, provides great access to shared amenities and allows property owners to live in or close to major cities. Best of all, it’s generally a more affordable option. This new way of living has transformed the property market, the availability of property and trends for investment property purchases.

1. Pay attention to the property cycle when purchasing and selling

There is an ideal time to buy and sell property. This ideal time depends very much on the property cycle. If you buy or sell during the wrong period within the cycle, your property’s profitability may not be optimal.

According to Marcus, this cycle comes down to supply and demand. “During COVID, the demand was quite high for property. However, there was no supply as people were reluctant to sell. So, the prices escalated to the point that property purchases became out of reach for many people. That’s been true across every single state in Australia.”

However, for the first time, Perth’s property prices recently fell 0.11% month-on-month. It looks like many other states are seeing signs of the property market cooling in the future too.

Change in property values:

Source: CoreLogic Hedonic Home Value Index, 1 November 2021

“While interest rates are low right now, they will likely be raised over the next few years to slow down the property market’s growth. In fact, we’re already seeing snippets of this. Fixed interest rates are already stabilising and going up, and we’ll see that with variable rates over the next few years too,” Marcus shared. “If you’re going to buy a property now, you need to make sure you can afford it with a 3% or so increase in your interest rates over the next few years. Or lock in something that’s going to be fixed for three years, and refinance after that.”

When the market gets to a point where there is more supply (leading to a reduction in demand), the market will likely stabilise. This is when you’re likely to get good value for money when purchasing a new property.

If you’re looking for an investment property more so than a new place to call home, pay attention to infrastructure developments. According to Marcus, changes to and new public transport services and infrastructure can lead to increases in property prices in the long term. “One thing to take into account if you are buying into a market is growth areas. Look at the new transport routes. Look at the infrastructure that’s going to be built in the future. Those will be the high growth areas. If you are looking into another investment property and can hold the property over 10 year period, those are the areas you should target,” Marcus explained. There have already been predictions of growth in Brisbane because of the 2032 Olympics and related developments. “Existing infrastructure will be improved for this event, which will likely lead to more development opportunities, more population growth, and eventually, property market growth.”

2. Buying a property is a long term investment

It’s easy to get caught up in stories of property investments leading to riches. In reality, however, buying a property is a long term investment.

“Nothing is an easy win in the property industry,” Marcus said. “If you want to make real money from the property market, you’ll likely need to stay in the property cycle for 10 to 20 years. You may make some money from a short term investment, but the property is always about long term wins over short term wins. If you’re hoping for a short term win, you may not find that in the property sector – especially in the coming years.”

This is particularly true for those hoping to invest in strata properties. At the moment, there’s quite a gap between houses and strata properties when it comes to property growth. Marcus shared that this may change in the years to come. “What I see potentially happening over the next 10 or 20 years is that more and more units will be built to accommodate our growing population. This means standalone houses will become more scarce. This could lead to the price gap between units and standalone houses decreasing. Strata properties will likely grow in value and may catch up the value of traditional houses,” he explained.

3. Types of investors in the current property market

If you’re looking to diversify your property portfolio with another purchase, you aren’t alone. Aussies across the country are now considering investment properties, thanks to the low-interest rates we’re currently experiencing.

According to Marcus, there are two main types of investors in the property market. “There are the normal standard investors that are looking for a return on their investment, and they look at a 5% return or 6% threshold on their investment every year,” Marcus said. “Through research conducted by the Urban Development Institute of Australia (UDIA), we’ve found the second type, new-age investors, make up about 40% of the market. They are generally mums and dads or people that want to buy into a building that they can see themselves living in.”

What exactly makes them different from regular investors? It appears they are investing in strata properties and community living settings they can see themselves living in in the future. According to Marcus, around 60% of strata-titled homes are currently being rented out. Many of these may actually be owned by these new-age investors, who purchased the property as an investment but plan to live in it one day when the time is right. “Thanks to the amenities featured in these properties, the investors can picture themselves living there and know that their tenants will love being part of the strata community too,” Marcus explained.

If you are currently wondering whether buying another strata property instead of a traditional house is wise, you can rest assured that this is something more and more Aussie are doing. By choosing a property that you can see yourself living in one day, you’ll give yourself more options to work with if you need access to better amenities or more space than your current home allows.

4. Do your research before buying off-plan

Buying off the plan can sometimes seem daunting because of issues that sometimes crop up, including delays, inflated costs and poor quality standards. However, according to Marcus, purchasing off the plan can be a safe option if you pick a property that is built by a builder and developer with a good track record.

Marcus shared that some buyers may become emotionally invested in off-the-plan properties they are considering, which can lead to clouded judgement. This is when a buyer may become more likely to ignore red flags. However, if you take the emotion out of the process and do your research with a clear head, you may be able to lock in a great off-the-plan purchase.

Here are some of his recommendations for those considering an off-the-plan purchase:

“I personally like green walls and how greenery is being included in new off-the-plan properties. Not only is it environmentally friendly, but it also brings that sense of nature back to the buildings. It obviously costs a little bit more to maintain gardens and green walls. However, if you’re in a complex of 50 or more units, it’s not a lot of money at all,” Marcus explained.

5. Before buying a strata property, consider the building’s ongoing costs and the materials used

If you have your sites set on a strata-titled property, take a close look at the buildings materials, amenities, levies and ongoing costs.

While low levies are great in the short term, they may be a sign that the property’s developers or owners corporation have not taken all expenses into account, and an adequate property maintenance plan may not be in place. According to Marcus, this is particularly true for buildings with low levies but plenty of amenities that require regular maintenance. “If the property has lifts and pools and the levies are coming in at $2500 or $3000 a year, that’s probably too low for that property. You don’t want to be surprised with a special levy down the track. You can avoid this if the property you purchase has the appropriate levy amount from the get-go,” he explained.

“You should also make sure the property has the appropriate materials. For example, a property may have timber decking around the pool. Timber decking takes a lot to maintain, and it increases the costs. If you do want to buy into a property with a pool, a property with tiles around the pool would be a better option because you won’t have to contribute as much for maintenance,” Marcus shared.

Marcus had some insights on building with problematic cladding too. “Make sure the strata property you are buying was built to correct standards. This includes appropriate cladding. If the cladding or building standards are problematic, avoid that strata property. Lots of insurers now won’t insure a building with too much cladding. There are a lot of new developments that are coming that have 60 to 70% cladding, which may struggle to get adequate insurance.”

Investing in property can be an effective way to improve your long-term financial security if you do your homework and make smart choices. By staying on top of property market trends and insights, you can be confident you are making the right choices for your financial future.

The above content is for the purposes of general information only. You should seek independent professional advice in relation to any particular matters you may have.

Having set up the very first strata scheme in Australia back in 1948, we’ve come a long way in our knowledge and experience across a variety of property types. Whether you are new to strata management or an active committee member, we have developed an extensive library of resources to assist you. Click here to download our FREE Community Living guide on committee management. For a consultation to review your current by-laws with the Kemp Peterson team, click here. To find out more about the services we offer, click here for a free strata assessment.