No1 For INVESTMENT PROPERTY
A popular option for many investors who are looking for a stable and long term return is investment property. Whilst traditionally it has been individuals who have purchased investment properties – both local and non resident investors. With Australia’s changing superannuation laws we are now seeing a growth in the number of Self Managed Super Funds (SMSF) who are now also purchasing investment property.
Investment property is a proven performer and has historically performed with similar returns to the share market, whilst being far less volatile than that market. Many do not realise, but residential property is Australia’s largest asset class by far, with an estimated value of $4.8 trillion, this compares to Australian Super which is worth $1.5 trillion, Australian Listed Stock which is worth $1.4 trillion and the Commercial Real Estate sector, worth $0.7 trillion
Not only is residential real estate the biggest asset, but it is also a very unique asset class, it’s the only market where the majority of the assets are held by owner occupiers and that’s why it is far less volatile than many other markets.
There are a number of things to be considered when it comes to making an investment in property and it is important to do careful research before you make your final decision. If it’s an off the plan property that you will be purchasing, then there are even more unique considerations to think through.
The purchasing process for an off the plan property – as well as the benefits that this type of property offers investors, can differ substantially from the purchase of an established house or unit purchase. As such, it’s important to have all the information you need to make an informed choice about your investment.
How does buying an off the plan investment property work?
If you are considering the purchase of an investment in property that is off the plan, this means that you are committing to buy the property before it has been constructed.
There can be a number of advantages to this type of purchase – you can secure a property at today’s prices, usually with a ten per cent deposit. In addition, you do not have to pay any more money until the property is completed – this can often be 12 to 36 months in the future.
Your ten per cent deposit is then held in a trust account by the developer’s solicitor and will generally not be available to the vendor until the project is complete. Though this is something that you need to confirm in the contract.
As a local Australian investor, you may be able to use a deposit bond or bank guarantee to the value of ten per cent when you exchange contracts, although this option can vary from project to project. Those purchasing through their SMSF’s would usually pay the 10% in cash, as would a non resident investor.
There are some advantages to investing in an off the plan investment property?
Purchasing off-the-plan investment properties is particularly popular throughout Australia’s major capital cities.
Sydney, Melbourne and Brisbane are particularly popular destinations and professionals flock from across Australia and around the world to these location to live and work – and new-build properties that are located close to the CBD’s and offer transport links in to the city and other commercial centres are a consistently popular choice.
In fact, proximity to public transportation – including trains, trams, buses and ferries – is one of the most important factors to take into account when choosing an investment property. Tenants want a property that offers convenience and these links to transport ensure that everything is easily accessible.
The other areas that tend to prove popular with tenants, in addition to being close to the city are areas that are near the riverside or coast, often offering enviable views of the water and also social hubs with plenty of nearby cafes, restaurants and bars.
And best of all, new properties tend to appeal to city-dwelling professionals thanks to their modern design, high quality of fittings, low maintenance and green credentials. As an investor, it’s the professional tenant who you want to appeal too. They tend to have a high level of disposable income, so can afford and are prepared to pay a premium rent. Plus they tend to be singles and couples, no kids who spend most of their time not in your apartment, but rather at work and play and as such there tends to be less wear and tear on the apartment than say if a young family lived there.
Why invest in off the plan investment property?
There are several benefits of investing in off the plan property, but the most significant one for most buyers is price.
When new projects are launched into the marketplace by developers, prices for individual properties tend to be at their lowest, so you can peg the market at today’s price but you are only outlaying 10%. Then if the market rises over the period that your property is being built, you can benefit from the increase in capital gain.
Those buying off the plan also find that this type of property allows them to have greater choice – you are likely to have more opportunities to select their position within the building, the floor plan that suits them etc.
Those buying their investment property off plan will also find that some states within Australia offer considerable stamp duty savings. However, stamp duty rules can change frequently and can vary considerably from state to state, so you may wish to carry out careful research to determine whether or not this can apply to you.