City lights attract investors to strata-titled properties

WHILE uncertainty has fuelled investment in property over the past 12 months, a limited supply of good product is affecting how individuals invest in property.

Research undertaken by the Real Estate Institute of Western Australia suggests that investors were responsible for 33 per cent of all sales in the September quarter.

The big activity seems to be associated with strata-titled properties close to the city.

However, a weaker rental market, negatively affected by the first home buyers’ grant, means investors need to make targeted careful decisions.

Uncertainty about the economy has prompted a number of investors to investigate the property market as an alternative to other, riskier, investment options.

Two-bedroom apartments priced between $200,000 and $300,000 located close to the city are the ideal targets for investment buyers.

Colliers International manager research David Cresp said there appeared to be a strong appetite for investment in property.

“The mum’s and dad’s market is putting a lot of money into residential developments and the result of that can be seen in the inner city residential market,” he said.

“And also in the suburbs there’s fairly good investor demand.

“The hardest thing is finding the right property.”

Investors looking to spend up to $300,000 are generally in the hunt for a brand new apartment, which will attract quality tenants and a good rental return.

Property in close proximity to the city is seen as a good opportunity with good returns.

“Mums and dads over the past 15 years have seen the need to fund their retirement and they have needed to chose investments that are fairly stable,” an industry source said.

“People understand property as investment because it’s one of the three necessities of life, And it’s not just the baby boomers planning for their retirement that has powered interest in property investment. An increase in research in this area has underpinned a more sophisticated understanding of the property market.

Real Eastate Institute of Western Australia public affairs director Lino Iacomella said investors were more sophisticated and seeking more targeted investment.

“The other matter you need to consider is that investment psychology is cyclical and there are periods of time where investment becomes more popular,” he said.

“At the moment, residential property is popular, whereas for a period commercial property was down, but there is renewed interest at a household level.”

Self-managed superannuation funds have driven interest in the residential property sector and low interest rates have created favourable conditions for investors.

Low interest rates make investment viable without the tax benefits that often run parallel to property investment.

There are two distinct investment products potential investors are chasing in the market, and the limited supply of these products is underpinning the development of certain residential developments in the city.

The property most in demand in Perth features the combination of an affordable price tag with a site offering future development opportunities.

“An existing site, which can be subdivided at a later date and where there’s strong demand from tenants,” Mr Iacomella said.

“In Perth there are a number of areas where this development is happening and a lot of it is caused by government redevelopment of public housing areas.

“The other area is the home unit sector, which at the moment is seeing the significant growth in property values.”

Well maintained older-style units also are being targeted by investors in response to strong demand in the rental market.

“There is strong demand for this style of rental property and investors are seeing the value for these properties rise,” Mr Iacomella said.

At the other end of the market, demand for new apartments is driving both inner city development and interest in properties on the fringe of the city, including East Perth and Subiaco.

“The ideal property is a two bedroom two-bathroom property that allows two people to share,” an industry source said.

One-bedroom apartments don’t command the same rental demand, however there are certain markets, including Subiaco and East Perth, where one bedroom, studio-style apartments are in strong demand.

“Three-bedroom apartments are not as attractive for investors unless they offer a major point of difference, like water views or a rare location,” a source said.

“There will always be demand for quality products, and savvy property owners will always seek to maintain the investment because it’s tax deductible.”

Director of local property development network Indianic, Rohan Taylor, claims that there are two main investor types who target quite different products.

“Young investors are a bit more comfortable with risk and they are buying into land with development potential and paying for the fact that the land is subdivisible,” Mr Taylor said.

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