Property investment gains to continue: how to grab a slice

Stellar growth in home values have delivered windfall gains to property owners in 2021. Here’s what they can expect in 2022.

Skyrocketing property price rises will float back to earth but still deliver owners and investors solid growth in 2022, real estate specialists say.

After capital city home values climbed between 15 and 28 per cent and regional areas rose an average 25 per cent in 2021, rising interest rates loom as a key headwind to slow the growth.

Investors are tipped to be more active as first home buyer interest fades amid affordability worries, and rents should be lifted by the return of migration from a two-year Covid hiatus.

REA Group Economic Research executive manager Cameron Kusher said demand for properties had been easing as supply increased and buyers saw recent fixed interest rate rises as a signal that variable rates would soon climb too.

“The country is reopened for business, meaning that people can travel and do things they haven’t been able to, which in turn is likely to see them less willing to dedicate as much of their income to housing as they have been during the past 20 months,” he said.

REA Group forecasts Sydney and Melbourne property values to rise between 4 and 7 per cent in 2022, Brisbane between 8 and 11 per cent, Adelaide between 6 and 9 per cent, Perth between 3 and 6 per cent, Hobart between 9 and 12 per cent and Darwin between 5 and 8 per cent.

REA Group’s Cameron Kusher, forecasts more growth for all Australian capital cities.

“I think the biggest headwind will be the potential for interest rates to increase earlier than expected,” Mr Kusher said.

“People who take out mortgages should be able to cover the increases given they are now assessed on their ability to repay a mortgage on an interest rate 3 per cent higher than the rate they are offered,” he said.

Metropole Property CEO Michael Yardney said pent-up demand was waning, affordability constraints would hit many buyers, and regulator APRA could slow down surging prices with tougher rules.

“So far APRA has only really tapped its foot on the brake pedal – it hasn’t really pushed down hard,” he said.

“Hopefully, they will have learned lessons from their past mistakes and remember that under their watch in 2017-18 the stricter bank lending criteria they instigated created a credit squeeze, which didn’t just slow the markets down but stifled the property markets for quite some time.”

Turner Real Estate managing director Lachlan Turner said a levelling off of property prices was likely.

“Once Australians start to resume their patterns of travelling more, eating out more and generally getting back to what they enjoy doing, the prices will start to ease on house prices as people will be spending those extra dollars back in the economy,” he said.

“The past 18 months has been so unusual as savings have been higher and that has driven the real estate market strongly.”

Buyer’s agent Chris Gray said 2021’s big rises were bad for first home buyers and not sustainable long-term “and so the heat is likely to come out of the market in 2022”.

But some capitals would still see double-digit returns, Mr Gray said, as well-located properties tended to double in price every seven to 10 years.

“We’re just 12 months into the latest upswing and the largest significant growth we’ve had was 10 years ago after the GFC,” he said.

“So I think we’re on track for more price rises over the coming years.”

Nicole Flavel, 25, bought her first property in 2019 and is looking to invest in another one.

“Property is a long-term investment so buying property now, while I have time for it to grow, is really important,” she said.

“The current low interest rates and strong rental demand is also a very attractive reason to grow my investment portfolio.”

Investor Nicole Flavel aims to buy a second property soon. Picture: Roy VanDerVegt

10 TIPS FOR PROPERTY INVESTORS

1. Start with a plan and focus on the long-term.

2. Remember it takes at least 20 years to achieve financial independence.

3. Have financial buffers in place to ride the ups and downs.

4. Buy the best assets your budget can afford.

5. Get into the market early – a first home doesn’t need to be a forever home.

6. Target suburbs further out if your dream suburb is too expensive.

7. Consider cheaper properties that need some work, if you’re open to renovations.

8. Avoid analysis paralysis, take action now, and learn from mistakes.

9. Concentrate on the numbers rather than emotions.

10. Focus on quality – a cheap property is cheap because no one wants it.

Source: Metropole Property, Turner Real Estate, Yourempire.com.au

Originally published as Property investment gains to continue: how to grab a slice