There’s no question that since the turn of this century, property investment as a wealth creation vehicle has become more popular. Rather than relying on the pension in our twilight years, more and more people are buying investment properties to finance their future lifestyles. However, many of these said same people are not considering all of the options or locations around the nation before they buy, including Sydney-based property investors. That’s mainly because investors have historically simply bought in their home towns. Sometimes that’s because their home has become an investment property when they’ve upgraded to a larger property or they may have inherited a property from a family member in the same area. It’s almost like accidental property investment.
Most of the time, they also don’t feel comfortable investing elsewhere because they don’t understand those other markets – and rightly so. But this outdated mindset, whilst understandable, can be self-limiting for anyone looking to build wealth through strategic property investment.
In 2021, many savvy Sydney investors will choose to become "borderless investors” by buying all across Australia and will reap the rewards of doing so. Indeed, 41 per cent of investors in the 2020 PIPA Annual Investor Sentiment Survey indicated they intended to buy their next property in a different
State than the one they lived in. So, here are five reasons why buying interstate can be a sound idea for Sydney property investors.
1. Affordability There’s no denying the fact that Sydney real estate prices are expensive. Buying a well-located, quality house in Sydney won't get you much change from $1.5 million. As an investment property, this is out of reach for many people, meaning they choose not to invest in property at all. However, prices in other major regions as well as smaller capital cities are much more affordable than Sydney. Did you know that you can buy a well-located house on a good-sized block of land in capital cities such as Brisbane, Adelaide, Perth (or major regional areas such as Newcastle, Geelong, and the Sunshine Coast) for between $500,000 to $800,000? More affordable buy-in prices certainly help property investment become more achievable, doesn’t it? For example, the median house price in Sydney was $1.015 million at the end of December, according to CoreLogic, but it was about $576,000 in Brisbane. That’s a big difference in prices that savvy investors can benefit from.
2. Better cash flow Not only does it cost less to buy property outside of Sydney, rental yields in other areas can also be considerably higher, too. Stronger yields are important to investors and can help minimise holding costs, thereby allowing an investor to hold a larger portfolio, channel funds into debt reduction, or even enjoy a better lifestyle! Again, consider the differences in yields between Sydney and Brisbane, with a yield of 2.7 per cent for houses in the Harbour City versus 4.1 per cent for the same in the Queensland capital, according to CoreLogic.
3. Market cycles Contrary to mainstream media, Australia is not one single property market. In fact, Australia is made of up eight states and territories, spanning more than 500 local government areas, 3500 suburbs and 10 million dwellings. On top of that, property markets don’t all grow at the same rate at the same time. For example, during 2003 to 2009, the Sydney market barely moved, while property prices in Brisbane almost doubled. Back then, the Brisbane median house price increased from $240,000 to $420,000 over that six-year period, but Sydney’s only edged up from $460,000 to $490,000 over the same timeframe.
These sorts of market discrepancies are why investors who time their entry into a market that is about to enter a growth phase can fast-track their wealth creation.
4. Risk minimisation Have you ever heard the saying, “Don’t put all your eggs in the one basket?” Well, this can ring true for property investing, too. By spreading your property portfolio around the nation, you can not only pick up on the different growth cycles, but it also helps to minimise risks. This can be relevant for capital growth, rents, and vacancy rates. For example, COVID is an example of this, given rents dropped and vacancy rates surged in Sydney, however, the opposite was the case in Brisbane.
According to SQM Research, the vacancy rate in Sydney at the end of December was 3.6 per cent, but in Greater Brisbane it was well into undersupply territory at 1.8 per cent. Many inner-metro Brisbane Suburbs have current vacancy rates under 1%. Likewise, asking rents have fallen in Sydney but have been rising in Brisbane because of the differences in supply and demand.
5. Land tax reduction Did you know that land tax is a state-based tax and therefore an individual can have a separate land tax threshold in each state or territory? This can be useful for Sydney investors, as dirt is expensive in the Harbour City, and expensive land taxes can kick in quite quickly for well-located property, which can be a big drain on your cash flow. That’s why spreading your properties around the nation can help to minimise, or even eliminate, your land tax bills, which is another reason why investing interstate makes sound financial sense for Sydney property investors this year.
Grant Foley is a Property Investor, Qualified Property Investment Advisor® & Licenced Buyers Agent. Enquiries: firstname.lastname@example.org
© Grant Foley Property 2021
The content of this article is of a general nature. Investors should seek their own independent legal & financial advice