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Property Investment

Residential Property Investment advice, tips, hints and some very interesting statistics.
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Some Facts

Owning a residential investment property is common in Australia. About 6% of the adult population own (either individually or jointly) at least one property as an investment. This involves over 1,000,000 landlords.

Investment housing represents about one eighth of total household wealth in Australia (about 12.5%). The Reserve Bank calculated in 1989 that the rental housing stock was worth about $137B. The figure in 1999 is very much higher given the recent boom in house prices.

As at 1996 there were 4,036,000 renters in Australia. This represented 27% of all households. 71% of those households rented their home from the private rental sector.

Renting is a normal, and natural, part of the housing lifecycle. It usually occurs after young adults leave their parents' home and before they settle down and marry or find a partner.

Renters tend to be concentrated, therefore, in the younger age ranges. More than one half of all renters are aged between 20-34 years and the median age group for renters is 30-34 years.

With the rapid growth of home ownership in Australia after WWII, the share of homes rented went into strategic decline. In 1945 about 45% of all housing was rented. The decline appears to have now been arrested. The share of occupied private dwellings which are rented seems to be slowly increasing once more. One of the key reasons for this is declining affordability of owner occupied housing. Another is the withdrawal of State governments from the provision of as much public rental housing.

Most housing investors own a very limited amount of property. They are generally ordinary Australians. About four fifths of them have only one rental property; 13% own two. Australia's landlords could hardly be described as capitalists. Most view their investment as a form of "quasi-superannuation".

Reasons for Investing

According to the Australian Bureau of Statistics, the most common reason for investing in rented property is the benefit of having a secure long term investment. Not surprisingly, rental property is especially attractive to many younger people. Interestingly, capital gains is not a dominant reason for buying rental property.

Reasons for Becoming a Landlord*

  • Secure long term investment 52%
  • Income from rent 16%
  • Reduce taxable income by negative gearing 14%
  • Investment for retirement 12%
  • Possible future home 10%
  • Potential capital gain 10%
  • Plan to return to dwelling and live there at a later date 6%
  • Other reasons
* Includes multiple responses 16%

The Recent Marketplace

Lending approvals for the purchase of dwellings for investment during calendar 1997 and 1998 were the highest in a decade. Whilst all states have recently experienced a healthy investment market, growth has been focused especially upon New South Wales, Queensland and Victoria.

A property boom has been occurring in Melbourne and Sydney. A typical Melbourne property worth $145,000 in late 1995 had risen in value to $195,000 by the end of 1998 - an increase of almost 35%. The respective figures in Sydney were $201,000, $258,000 and 28%.

Flats and units are significantly cheaper to buy than houses. A typical flat/unit in Sydney cost $220,000 at the end of 1998 but only $86,000 in Hobart.

There was an under supply of rental property in Adelaide, Canberra, Sydney and Perth as at the end of 1998. A vacancy rate of less than 3% of stock usually signifies a shortage of rental stock.

Return on residential investment was over 20% in Sydney and Melbourne during 1997-98. It was almost 17% in Canberra.