Is 2021 a good time to buy an investment property?
Investing in property allows you to find financial freedom, grow your wealth, and leave a lasting legacy. As fixed assets only appreciate over the long term, there is no right or wrong time to buy an investment property. Your financial circumstances are the only deciding factor in determining the right moment and time in the market is better than trying to time the market.
In 2021, the property market in Western Australia finds itself continuing the upward trajectory that started in the latter half of 2020. According to the CoreLogic Hedonic Home Value Index, Perth is currently the fastest-growing property market in Australia. With a home value index lifting 1.6 per cent in January alone, the demand for investment property promises an excellent return for the savvy investor.
According to REIWA’s 2021 outlook sentiment, the Western Australian property market is expected to steadily grow in both sales and rental markets. After the unprecedented and unusual year experienced in 2020 due to COVID-19, a competitive rental market has resulted in upward pressures on rents of +8.5 per cent.
Rents are expected to potentially grow an additional 10 to 15 per cent throughout 2021. Even with this increase, Perth will still represent the most affordable city to rent in across Australia.
This positive outlook for Perth’s rental market may attract investment in the Perth market, which will in turn increase available rental stock coming to market. Additional supply would curb the intense competition currently experienced and ease the rental increases in time.
Buy low, sell high
There is no doubt that the pandemic upheaval of 2020 will continue to impact global economies. Governments worldwide have had to introduce unprecedented measures to deal with lockdowns and recurring COVID-19 infection waves. Many countries lowered their prime lending rates to inject some stimulus into their waning economies. This macroeconomic move meant lower financing costs for all assets, including property.
In Australia, at the Commonwealth level, the federal government introduced a fiscal stimulus with measures totalling A$267 Billion. Regarding the interest rate, on the 2nd of February 2021, the Reserve Bank of Australia maintained the cash rate target at 0.1 per cent. That level is well below 5 per cent, the average since 1990, and is the lowest cash rate in over two decades.
With the cost of financing at historic lows and the market prices showing some positive upward trajectory, 2021 looks like an excellent year to invest in Australian property. With analysts predicting no rise in interest rates until 2024, forecasting any finance debt repayments is straightforward. With no expected increases, there is minimal risk of a cost fluctuation negatively affecting your property yield.
A paradigm shift
It is always a good time to invest. The question is not when but where. COVID-19 transformed the way many people work. As governments deemed workplaces and offices high-risk super-spreader environments, the resulting lockdown regulations forced many organisations to implement work from home policies. It also refuted the notion that employees are less productive when they are not working at the office.
A survey conducted by The Conversation found that over 30 per cent of managers thought team performance had increased. The report compiled with assistance from the Community and Public Sector Union also found the majority saw no difference in performance levels. However, this study’s resounding statistic was that only 10 per cent of managers thought their teams were less productive when working from home.
The COVID-19 pandemic highlighted the economic need for enterprises to remain productive while their offices were forcibly closed. However, it may have also started a revolution in the ‘where’ people work. From a property investment point of view, this paradigm shift presents some exciting opportunities.
Historically, buyers prefer to purchase properties located near business districts. It takes less time to travel to and from work, offering a better work-life balance. Due to the high demand for these prime locations, these sought-after areas’ property prices are typically higher than outlying districts. However, if work from home becomes a permanent way of life, many would consider relocating to places that offer a lower cost of living and a better lifestyle. This possibility creates a good yield opportunity for the property investor willing to venture into these areas.
Should you buy an investment property in 2021?
For investors looking for long-term capital growth, property remains a sound investment. Any investment carries some form of risk, but with property prices recovering to pre-COVID levels and interest rates at a record low, the risk is minimal. Resisted by managers for years, the COVID-19 pandemic coerced enterprises into adopting a work from home policy. With studies showing this trend may continue post-COVID, it opens other markets for would-be investors in historically lower-cost neighbourhoods. In 2021, with income yields at relative highs and interest rates at record lows, there is no better time to buy an investment property.
HERE to help
If you’re considering an investment property in 2021, we’re HERE to support you along the way.
Contact the HERE team to discuss how we can help you maximise your property’s potential while minimising risk with a tailored approach focused on your goals.