Why the Future of Investment Properties Will Remain Strong in a Turbulent 2021
Investment properties have always been in demand in Sydney. As one of the most popular cities in Australia, we’ve benefitted from having a solid demand for housing and commercial rentals, making most properties worth the investment. However, much like 2020, 2021 has proven to be quite tumultuous. With the borders still shut, snap lockdowns occurring and the number of tourists and international students slowly dwindling, many people wonder if investment properties will remain as robust as they once were.
At Cite Group, our property developers are fully confident that our investment properties will remain strong throughout 2021 and into 2022. There’s no blind confidence or wishful thinking here, there are a few solid reasons why our company believes this. We’ll get into those reasons soon, but first, let’s discuss what investment properties in Australia need in order to remain strong for the foreseeable future.
What do investment properties need to provide robust long-term capital gains in the future?
It’s worth noting that an investment property is real estate property that is purchased with the intention of earning a return on the investment through two methods: rental income and the future resale of the property. In many cases, booth streams are used for return on investment.
This definition indicates that investment properties need two key elements to provide long-term capital gains: renters and buyers. 2021 has been doing much better than 2020, however lingering problems remain, begging the following questions:
- With international students accounting for many of Sydney’s renters (Melbourne as well), who will rent from investment properties?
- Has JobKeeper’s termination affected the rental market?
- Will offices and people move away from the city as remote working becomes ‘the norm’?
These are just some of the questions that have planted doubt in the minds of property investors across the state. While it is worth the thought and we can see how some may have doubts about the future of investment properties, we firmly believe that they will be resilient throughout 2021. Admittedly, part of this has to do with the fact that Sydney and New South Wales have relatively robust and resilient economies that have been able to weather the majority of the pandemic and other downfalls. In this article, we’ll look at a few more factors that lead to our confidence in investment properties.
3 reasons why investment properties will continue to provide robust long-term capital gains
Low-interest rates and government incentives
Thankfully, the government is aware of the issues that many Australians are experiencing. The Reserve Bank of Australia has been keeping the cash rate extraordinarily low which has been helping interest rates from banks remain low as well. This makes it much easier for people to secure loans and purchase a property which has been keeping demand afloat.
Additionally, government incentives have contributed to keeping the demand fairly steady. Incentives such as the $10,000 First Home Owner Grant helps residents in New South Wales to purchase homes (houses, townhouses and apartments are included), provided they are first time buyers.
Historic long-term security
As mentioned previously, thus far, 2020 was much worse for Australia. However, most property developers, investors and real estate experts will tell you that Australia bounced back remarkably well, despite the odds being stacked against them.
70% of the jobs lost were recovered, home prices returned mostly to normal, government incentives were available and interest rates remained low, allowing investors to keep costs low and pay off their investment quickly. As most of these factors are still present in a much better situation, we have full confidence that investment properties will not suffer this year.
The eventual return to normalcy
At Cite Group, we believe that normalcy is near for Australia and frankly, the world. Though it’s safe to say that we have been living a relatively normal life when compared to the rest of the world (until recently), many people have moved out of the city (where many investment properties are based) and the borders have remained closed. Though the Prime Minister recently announced that there will be no changes to the hotel quarantine system until next year, making it less likely that immigration will improve the demand for rent, other elements point to positivity.
As vaccination rates increase (slowly but surely), more businesses will request that workers return to the office, improving the need for commercial and residential rent. Additionally, with more vaccinations in the country, it makes it more likely that international travel will return to Australia as it has in many other parts of the world. We’re no longer in the darkness that we were last year, with a new four-phase plan the end is in sight and soon, investment properties will be providing much stronger capital gains.