The old saying tells us that what goes up, must come down – but with the Aussie property market, it seems the opposite is true: when prices hit bottom, the only way to go from there is up. That’s why Perth might now be just the place for property investors to start looking.
Property prices in Perth have slumped over the last couple of years, thanks to mining being on the decline. But with a bit of an uptick in commodities and exports, I’m expecting to see property prices start to climb again over the next year or so.
For investors looking to jump into a new market, Perth could be just the place to pick up a bargain and then ride the upswing of the property cycle in the coming years. But a move like this comes with its own set of rules and risks, so make sure you do your homework before diving in.
What to look for in Perth:
- Location. No matter what city you buy in, location is an important part of choosing an investment property. Look for a house close to desirable amenities like shops, public transport, sporting fields, parks or recreation areas. In Perth, you should focus on places within 10-15 km from the CBD – preferably with dedicated parking spots.
- Rock bottom prices. At the moment, you can still pick up a house in Perth for under $500,000 – which you just won’t find in other capital cities like Sydney or even Melbourne. So buying in Perth is your chance to really dig in and shop for a bargain. Haggle, ask for discounts, or offer less than you’re willing to pay. Remember, the more they want to sell, the more room you have to negotiate.
- Long term opportunities. Because a Perth investment is banking on the market eventually climbing high enough for you to make a considerable profit, shop with one eye on the future. Look for bargain properties bursting with potential – like development projects or fixer-uppers. Remember, this has the potential for a big payoff, but you risk pouring money into a place where rental income may never reach Sydney levels. So this is a strategy suitable for more adventurous and financially stable investors.
Challenges to watch out for:
- High vacancy rates. The problem with buying at the bottom, is that it might take some time before your investment pays off. Perth currently has a high vacancy rate of 4.7%, which means you run the risk of having your property sit empty for months at a time. The best thing you can do to combat this is, firstly, have your finances in order, and second, choose your property wisely. There are a limited number of renters looking in Perth – you need your property to be the one they all want.
- Low rental income. Related to the problem of high vacancy rates, is the issue that once you do have renters, you won’t be able to charge the same prices you might in Sydney or Melbourne. Low demand means low rent, so make sure you’re in a position to handle mortgage repayments and other costs while making little or no income from rent.
- Start-up costs. Speaking of costs, before investing in Perth, it’s important to carefully consider your financial standing. Not only do you have to look ahead to the future – a $320,000 loan over 25 years, at a low rate of 3.49% means making monthly repayments of $1,600 – but also fees and taxes you’ll need to pay upfront. On a $400,000 property, you might pay as much as $13,400 in stamp duty and mortgage fees. Can your budget handle those costs, if your rental property is vacant?
So while Perth is potentially a good opportunity for savvy investors, anyone looking to take their dollars West first needs to have their finances thoroughly in order, including finding a rock bottom home loan rate. It’s a strategy better suited to experienced investors who can easily ride out the slump in order to cash in on rising prices later on.