A rush of apartment developments in major cities has raised questions about the property outlook, but it should be a godsend for investors, writes Richard Sheppard.
The gut reaction of the media and even some investors is to question property investment when there is a significant spike in residential developments. But are they right to be worried? It’s a widely misunderstood concept and opens up the old debate about the impact of demand and supply. Demand is usually driven by affordability, and if there is a significant over-supply of properties it is likely that prices will drop. That’s not great for sellers, but it is good news for investors eager to use their equity to purchase more property.
Take a long-term view
Brisbane and the Gold Coast, the two markets tipped to perform best in Australia in coming years, illustrate the point. To put it in context, excellent investment properties in Brisbane cost about $400,000 to $450,000, while the equivalent in Sydney will set you back about $1 million. Of course, if a market is subject to a long-term oversupply of property, it can lead to a sustained slump in prices. That is not the case in Brisbane, where the current development pipeline in inner-city suburbs only fills a portion of underlying demand. An important point is that investors should always try to take a medium to long-term view as markets will almost always behave in line with principle fundamentals over such a timeframe.
Use a buffer
That is not to say investors should take unnecessary risks. Higher supply may result in longer rental vacancies over the short term. To mitigate this risk, we recommend taking out a financial buffer to manage cashflow fluctuations. It is also crucial to access excellent market research so you can target the best-performing suburbs. As supply diminishes in the next year or two, those investors who are buying now will be well placed. It demonstrates the point that high supply can be a winner for investors.
Richard Sheppard is the Managing Director of inSynergy Property Wealth Advisory. inSynergy provides professional property investment advice, property market research, specialised mortgage broking services and is an accredited investment property buyers’ agent. Visit www.insynergy.net.au or phone 1300 425 595.