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Investing in property 2021: our predictions

2020 has been an unpredictable year but it looks like 2021 will begin to lead us on a solid recovery path. Housing values across Australia have mostly stabilised after marginal drops in the first half of the year.

However, while 2021 looks like it will be a promising year in regards to COVID-19 recovery and normalisation, we don’t know for sure how the Australian property market will be impacted. Until an effective vaccine is widely distributed, we are still vulnerable to future waves of the virus. The housing market may be in part dependent upon Australia’s ability to control the virus.

In this article, we’ll discuss our tips and predictions for property investment in 2021.

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1. Fluctuating property values

Although property values haven’t been hit too badly in 2020, they have been bolstered by JobKeeper and other government stimulus packages. When JobKeeper is axed and JobSeeker wound back, there may be a bit of economic turbulence as Australians figure out how to manage without this support.

It is possible that house prices will depreciate during this time, particularly in inner city areas. This could signal a transition into a buyers’ market as investors who are unable to keep up with repayments could be forced to sell.

If you are currently renting out a property, it’s worth being aware of the financial situation of your tenants to get an idea of how or whether this will affect you. Focus on building up an emergency fund, just in case your investments don’t pan out how you had expected.

2. Vacancy rates could skyrocket

In 2020, many renters have been moving out of the traditional inner city apartments that in the past have been considered ‘failsafe’ investments. Remote working has removed the desire of many professionals to live in close proximity to their offices. Now you can work from the suburbs, countryside or by the beach!

Keep an eye on the vacancy rates for areas you’re interested in investing in. Australians are always going to need homes to rent, you just might need to shift your strategy and expectations.

If you are trying to rent out a property in an area with high vacancy rates, you’ll be competing with other landlords. You may even need to consider lowering your rental price in order to attract tenants.

To minimise the potential of having difficulty renting out your property, make your rental as desirable as possible. Here are some tips:

  • Research high growth areas and buy a property that your ideal tenant won’t want to pass up
  • Don’t underestimate the importance of good marketing and a well-connected real estate agent
  • Present your property well, focusing on cleanliness and an updated kitchen and bathroom
  • Make some low cost changes to make your property more appealing.

Read our full article on making your property rentable to ensure your investment property is never vacant.

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3. Is it time to ditch the big cities?

With remote working seeing a necessary uptick in 2020, many companies are realising that their employees can do their jobs just as effectively at home. This means that workers currently living in the capital cities can finally consider living elsewhere now that they can work from home.

Property and rental prices are generally much more affordable outside cities like Sydney and Melbourne. So, there could be more interest in smaller cities like Newcastle and Wollongong, and regional centres such as Ballarat, Bathurst and Orange.

Buying an investment property interstate or outside of your city

There’s no need to limit your property investing journey to the town, city or region you live in. There are so many other areas to consider — even other cities!

Here are some steps to take when buying interstate or outside of the area you reside in:

  1. Research: take the time to strategically research potential investment areas by analysing property values, trends, and relevant economic studies and data. Particularly look out for trends indicating population growth that could lead to greater demand for rental properties. Also figure who the main employers are in the area and how viable they are in the coming years.
  2. Visit: while you can buy a property without ever seeing it, it’s smart to take a trip to the area it’s in to make sure it aligns with your expectations and investment goals.
  3. Talk with local agents: when visiting the area, meet with local real estate agents and ask any questions about the area and get a feel for what your average tenant could look like.
  4. Property management: since you won’t be living near your investment property, you’ll likely have to hire a property manager to take care of your rental. They’ll help collect rent, sort out any tenant issues, perform inspections and much more (at a cost). Property managers usually charge a percentage of your rental income. Take time to research. Ask around and seek testimonials from former clients of property managers to make sure you find the right one.

4. Consider investing in houses, rather than apartment units


Just like the point above, many professionals are vacating the standard 1 bedroom inner city apartments in favour of more space. There’s something about working from home in a tiny space that’s a little draining.

A standard 1 bedroom apartment is less likely to deliver the safe, expected results as it has done in the past. Look into spacious homes a little further from the centre, or even in regional areas.

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5. More negatively geared properties

Rental incomes will likely see decreases in many areas, forcing some investors to sell, while others will have to negatively gear their properties. Negative gearing is usually an intentional investing strategy that investors use for tax benefits.

However, if rental vacancies rise, more landlords may make the tough decision to lower their rental prices. This could cause the property to become negatively geared, which is when the costs of owning the property (i.e. mortgage repayments, upkeep etc.) exceed the rental income. These losses are tax deductible, but there is greater financial risk and your cash flow will be reduced.

These losses may also be offset in the future by capital growth made through selling the property. This, however, relies on the assumption that the property's value will grow. Don’t forget, if you make a capital gain (profit) by selling your investment property, you’ll likely be subject to capital gains tax.

6. Home offices will become a prized feature in rental properties

When buying an investment property, think about whether it has a designated office or a space where an office could sit. More Australians will be working from home and an office could be the one feature that sets your investment property apart from all the competition.

You could even consider staging your rental property to include a proposed office area to show potential renters how an office could be incorporated into the home.

7. Relaxed lending rules could put more investors on the property ladder

Reforms to lending policies were announced in the 2020 budget, making accessing credit easier for Australians. Not only does this include home loans, but also credit cards and business loans. This will be done by winding back some of the rules that used to require extensive checks on borrowers’ expenses before approving a loan.

This will benefit all borrowers, but first home buyers and self employed borrowers in particular. Normally these groups face more difficulty being approved for loans as the previously have fallen short of the minimum living expenses tests administered by lenders in accordance with past laws.

Prospective homeowners may remember hearing about how lenders carefully sifted through bank statements, declining loan applications due to ‘frivolous’ spending on things like online shopping, Netflix subscriptions and food delivery services.

We can’t know for sure what is to come in 2021, but so long as property investors are willing to switch up strategies and put in a little more effort, good things could happen.

It may be a good idea to speak to a financial advisor if you’re interested in starting your property investment journey. Our mortgage brokers are here to help if you have questions about investment home loans, interest rates and the property buying process.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: interest rate, home loan, lender, first home buyer, investment, investing

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