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A time to invest

Jessica Darnbrough 7 minute read

Investors aren’t rate sensitive and buy at several points in the property cycle, spelling business opportunities for brokers willing to explore this market

Looking for a client base that buys property regardless of market cycle, that delivers referrals, and that will use your services several times in their financial life?

Then look no further than the investor market.

Latest data from the Australian Bureau of Statistics shows investors currently account for approximately 37 per cent of all new mortgages written.

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And, if industry stakeholders – such as Smartline’s executive director, Joe Sirianni – are to be believed, this percentage is set to grow.

According to Mr Sirianni, 2013 will be ‘the year of the investor’.

Based on Australian Property Monitors data, rental yields currently range from 4.25 per cent in Melbourne to 6.22 per cent in Darwin, he says.

When comparing these yields with the 4.99 per cent fixed rate loans currently available, it is fair to say the opportunities for investors are plentiful.

“These kinds of figures are a real treat for property investors, particularly in a capital city,” says Mr Sirianni.

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“With interest rates at low levels, strong rents, low vacancy rates and a shortage of rental properties in some areas, there’s a lot for property investors to be excited about.

“Now that people can access their self-managed superannuation funds to buy property, and first home buyers have retreated from the market, 2013 is increasingly shaping up as the year of the property investor.”

Currently, houses in Brisbane, Perth, Canberra, Darwin and Hobart, and units in Sydney, Brisbane, Adelaide, Perth, Canberra and Darwin have yields above the potentially lowest available fixed rates.

Aussie’s executive director John Symond says everyday Australians could “seriously consider moving into the investment property market and have the rent cover the mortgage”.

“In effect they could ‘set and forget’ an investment plan for their future,” Mr Symond says.

“Both fixed rates and variable rates are the lowest they have been in years; interest rates can be below 5 per cent. Housing prices in some areas are historically low but are starting to move back up and now investors can earn high rental yields.

“Properties with high rental yields are of benefit to those investors who have less disposable income that they can use to pay the property’s associated bills.
If they are earning higher gross rental yields, they can afford to own it in the first place where otherwise they might not be able to.”

New research from RP Data shows the ‘best’ suburb in the country for investors to consider is Bellamack in Darwin, which boasts a 16.9 per cent rental yield, coupled with an even bigger 24 per cent increase in rents in the past 12 months.

RP Data’s senior research analyst Cameron Kusher says the research provider only looked at properties of under half a million dollars.

“This research is primarily looking at those areas where the ordinary Australian on an average income may be able to afford to enter the investment market and, as such, we looked at properties that were under $500,000, and which earned high gross rental yields,” he says.


A confidence issue

But even though rental yields are high and interest rates are low, indicating that now is a good time to invest, not all consumers are ready to take the plunge and become investment property owners.

According to the latest Westpac-Melbourne Institute Consumer Sentiment Index, consumer confidence has recently taken a tumble.

The index fell from 110.5 in March to 104.9 in April. Westpac’s chief economist Bill Evans says the result was surprising given that the previous two months had shown solid growth in confidence.

“The index had risen by 9.9 per cent over the previous two months and it appeared that, finally, after the Reserve Bank had been cutting interest rates for more than 12 months, that the rate cuts and a more settled world economy were gaining real traction with consumers,” Mr Evans says.

“While it was reasonable to expect the recent momentum in the index over the last two months to have slowed in April, a 5.1 per cent fall was not expected.

“This result emphasises how fragile consumer confidence has become in the current environment. In fact, the index is now only 1.5 per cent above its level in November 2011, following the Reserve Bank’s first cut in this easing cycle and only 0.6 per cent above the print from last November.

“When rate cuts took hold in the previous two cycles the index surged by 37 per cent (2009) and 18 per cent (2002). The recent increase of 9.9 per cent, now marked down to 4.3 per cent, looks much less convincing.”

So, with a recently subdued confidence level, and the Reserve Bank’s series of rate cuts struggling to provide a much-needed boost, what can brokers do to ensure they attract and retain investor clients?

Empower Wealth’s Ben Kingsley says it pays for brokers to have conversations with their existing clients and discuss the benefits associated with investing in property.

As Mr Kingsley explains, every existing client is a potential property investor – they just need to be educated in the reasons why property investment is a sound solution for them and their financial future.

“The sheer size of the property market means that there will always be great investment opportunities in some markets,” he says.

“The good time for a client to invest is simply when they are in a position to afford it, both today and for the next five to 10 years, because investing in property should be looked at as a long-term investment.”

According to Mr Kingsley, there are many benefits associated with having a strong database of investor clients.

Brokers who can convert their existing clients into property investors will ultimately build a strong, profitable business.

“Not only do investment properties represent around 30 per cent of the total residential property market, but most investors borrow to acquire an investment property and usually this loan is the last debt to be paid down after they pay off their principal residence, so the loans tend to have greater longevity for brokers,” he says.

“In addition, if a borrower is a successful property investor, they may acquire more than one investment property, which will usually result in this client’s combined borrowing being greater than other types of clients, meaning they are a more valuable client for brokers.”

In this special report on the investor market, The Adviser will further identify the benefits of having a database populated with investor clients.

We will also look at the ways some brokers have managed to attract and retain investor clients.

Finally, we will examine the types of product that are most suited to investor clients and what brokers need to know in order to sell these products effectively.

A time to invest
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