Australia’s booming property market has been hitting the headlines since the start of the pandemic. While most commentary is good news for investors, there are plenty of property investing myths and misconceptions out there.
As an investor, the best way to make an informed decision about your next move is to dig into reliable, trustworthy data.
To give you more clarity on what’s really happening in the Australian property market, we’ve debunked five of the most common real estate myths using the latest industry statistics and research to help you make foreign investments in Australian property with confidence.
Real estate myth #1:
You need to buy an investment property in a capital city
Capital cities have historically been seen as a wiser investment choice. There’s been stronger population growth in capital cities over the last 25 years and a wide range of job opportunities to keep rental demand steady.
But the Australian property market is shifting for investors. Thanks to the pandemic and the rise of flexible and remote working, Australian tenants no longer need to live in close proximity to the CBD. Instead many are packing up and moving to the coast or bush as part of Australia’s regional property boom.
The latest data from CoreLogic reveals that capital growth has skyrocketed in regional Australia, rising by 13% compared to the 6.4% annual growth seen in capital cities. One of the best performing regional areas was Richmond-Tweed in NSW, where houses have risen 21.9% and units by 15.5%.
Other lifestyle driven spots such as the coastal postcodes in Byron Bay, Suffolk Park and Lennox Heads have also seen huge price growth over the past year.
But, there are still important things to consider when weighing up where to invest in Australia’s regional market. It’s worth looking for regional areas that:
- Are located in close proximity to capital cities, ensuring tenants are able to commute into CBD offices when needed for work.
- Are supported by a range of industries and are not reliant on one employment sector to lower the risk of vacancy.
- Appeal to city dwellers looking for a lifestyle change while still having easy access to local amenities (such as schools, shopping centres, and spots to eat and drink).
The other big bonus of investing in regional areas is that investors have a higher chance of positive cash flow. In many regional suburbs, it's possible to score a property for $220,000 less than the capital city average.
Add in high rental yields (nearing 5% in regional areas compared with the capital city average of 2.9%), and it’s easy to see why many regional investors follow a positive gearing strategy.
This positive cash flow means you’re likely to make a profit week-to-week to help you grow your portfolio faster (or simply have an extra source of passive income).
Real estate myth #2:
It’s impossible to find investment property at entry-level prices
With all this talk of skyrocketing property prices, you’ve probably heard the myth that first-time investors have been priced out of the Australian market. But, that’s absolutely not what the stats are telling us.
With median property prices tipping over $1 million in Sydney and Melbourne, savvy first-time investors are looking at more affordable regional postcodes to get their foot in the door.
The latest data from Real Estate Investar shows there are plenty of Australian spots to invest at entry level prices, including:
- Moreton Bay (QLD): median house price of $525,000
- Ballarat (VIC): median house price of $550,000
- Newcastle (NSW): median house price of $473,000
All of these three areas are within a two hour drive of their nearest capital city and offer a range of job opportunities to keep vacancy rates low.
Even within Australia’s capital cities, there are affordable pockets that can help investors succeed on an entry-level budget. Spots such as Sunbury or Melton in Melbourne as well as Strathpine and Oxley in Brisbane are some of Australia’s best suburbs to invest in with low capital.
Real estate myth #3:
Houses are rising in value faster than apartments
With investors flooding back to the Australian market, we’re seeing a big shift in price growth trends. As recently as 12 months ago, house prices were rising 1.1% faster than units each month. But this gap is narrowing, and expected to flip in 2022 and beyond.
As international travel returns, the arrival of overseas students, tourists and returning Australian residents are expected to push up apartment prices further (especially in the capital cities of Sydney and Melbourne).
Confidence in the Australian apartment market has never been stronger, with investors now accounting for 50% of all unit sales.
We’ve seen rental prices rise in the majority of Australian capital cities, including
- Brisbane +1.1%
- Hobart +2.8%
- Adelaide +2.9%
- Canberra +3%
- Perth +11.7%
- Darwin +14.3%
As we move into 2022, demand for these inner-city apartments is likely to increase, along with potential rental yields.
One of the best ways to succeed in Australia’s apartment market is to look for low-density apartment blocks in areas with low vacancy rates. The more competitive it is for tenants to secure a unit in that area, the more likely you’ll be able to charge a premium for rent.
Real estate myth #4:
Population growth = property price growth
Many investors fall into the trap of seeing population growth as an indicator of property price growth. But the equation isn’t as simple as it might seem.
Take this example: the ABS reported that greater Melbourne saw the highest population growth in Australia between 2012 to 2020 (20.9%) - but, this didn’t lead to Melbourne scoring the highest capital growth.
What this tells us is that using a single indicator to measure property price growth doesn’t deliver accurate results.
The best way to assess whether a suburb is a smart investment is to look at a range of metrics, including stock levels and time on the market, to get a more holistic picture of the trends at play.
Real estate myth #5:
The Australian property market is going to crash in 2022
After a bumper year in Australia’s property market, one of the biggest property investing myths flying around is that the Australian real estate market is going to come crashing down.
In 2021, CoreLogic reported Australian housing values rose 20.3% (the fastest pace of annual growth since 1989). As we head into 2022, the opening of international borders means there’s strong demand from investors ready to capitalise on Australia’s booming property market.
While a crash isn’t on the cards, the sentiment among regulators in Australia may mean a slow in the speed of price growth in 2022. The Council of Financial Regulators and APRA (the Australian Prudential Regulation Authority) are considering new lending restrictions that may make it tougher to access home loans for some investors and buyers.
While there are a lot of myths and misconceptions around the Australian property market, the most successful people investing in the country’s real estate will look at reliable data to make their own decisions. By referring to reliable statistics, you’ll understand there are plenty of wise investment opportunities across Australia that offer strong rental yields and a good chance of capital growth.
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