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This story explores whether property remains a sound investment by examining its historical performance, the current market conditions, potential benefits and inherent risks.
The Australian property market has been a hot topic among investors, with property values doubling in the major capital cities over the past decade. But is it still a viable investment option in 2024 and into 2025?
The Australian property market overall has experienced significant growth over the past few decades. With more than 15,000 suburbs, it’s in fact many markets.
From the housing boom in the early 2000s to the recent surge in property prices post-pandemic, real estate has been a cornerstone of wealth creation for many Australians. Historically, major cities like Sydney, Melbourne and Brisbane have seen substantial increases in property values, driven by population growth, economic stability and robust demand.
As of 2024, this is characterised by diverse conditions across different regions. Key factors of influence include:
One of the primary attractions of property investment is capital growth. Over the years, Australian properties have consistently appreciated in value. For example, properties in Sydney have seen an average annual growth rate of around 7% over the past 20 years. This capital appreciation can significantly boost the overall return on investment.
Investing in property also provides the opportunity to earn rental income. Properties in desirable locations can generate steady rental yields, often ranging from 3-5%, while DPN’s dual income and duplex properties commonly fetch 7-8% yields. This rental income can cover mortgage payments and other expenses, potentially leading to a positive cash flow situation where the rental income exceeds the costs.
It’s no secret the wealthy often seek to pay less tax. Property investors in Australia can take advantage of several tax benefits. Negative or positive gearing rules allow investors to deduct the costs of owning an investment property from their taxable income, potentially resulting insubstantial tax savings. Additionally, new buildings have higher depreciation claims on the building and fittings, which can further reduce taxable income, enhancing the overall return on investment.
Even though property prices in Australia have a positive long-term growth record, there are times where they can stagnate and even fall in certain markets.
Investing in property involves upfront and ongoing costs. These include purchase costs, such as stamp duty and legal fee, maintenance expenses, property management fees and insurance. Investors should account for periods of vacancy where rental income might not be generated.
Economic risks of investing in property include the potential for interest rate rises that will increase loan repayments and economic down turns that can lead to a decline in tenant demand in particular locations.
Identifying high growth areas is crucial for successful property investment. In Australia, regions such as Sydney's south western suburbs, NSW Hunter region and South East Queensland have shown significant potential. These areas benefit from strong population growth, infrastructure development and increasing employment opportunities.
Analysing market trends in different regions can provide insights into future investment prospects. For example, regions experiencing significant infrastructure projects, such as new transport links, schools and commercial developments, often see increased property demand and value appreciation. Additionally, areas with strong rental demand, such as those near universities or major employment hubs, can offer attractive rental yields.
DPN customers have seen impressive returns in the Hunter region of NewSouth Wales. The suburb of Paxton is one example. With an above-average annual rental yield of 8.2%, Paxton's performance is more than double the current average rental yield of 3.6% for investment properties across Australia. Moreover, the area has experienced impressive capital growth, with property values increasing by 56% in just four years.
Some strategies first-time investors might like to consider are:
Investing in property can be a highly rewarding venture, offering substantial capital growth, steady rental income and valuable tax benefits. However, like all investments, it also comes with risks and challenges that can be minimised with expert guidance. By focusing on strategic locations and employing effective investment strategies, investors can maximise their returns. With the right approach and careful planning, property investment can be a lucrative addition to your financial portfolio.
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