NEWS

There’s a significant new trend in property investment: for the past three years, a majority of Australian investors have been positively or neutrally geared. That means their rental income has met or exceeded their expenses, including loan repayments. As a result, they’ve been pocketing extra income each year on top of any capital gains. This is a significant shift given the previous 20-year trend of most investors being negatively geared.  The trend is revealed in FY23 tax data released by the Australian Taxation Office (ATO) last month.

Based on all our tax returns, the ATO reports there were 2,261,080 Australians with an interest – either sole ownership or joint or part-ownership – in one or more rental properties in FY23.  Among them, 51% – or 1,143,905 – reported net positive or neutral rental income.

This is the third consecutive year in which more investors came out ahead after expenses. In FY22, 58% of investors reported positive or neutral net rental income. In FY21, it was 53%. This follows a two-decade history prior to FY21 when the majority of investors were negatively geared each year.  The fact that interest rates were at record lows in FY21 and FY22 is the most obvious reason why more investors were positively geared in those years. But what about FY23?  The Reserve Bank of Australia raised interest rates 10 times (albeit from a low base) in FY23. The cash rate rose rapidly from 0.85% to 4.1% between July 2022 and June 2023, and yet most property investors remained positively geared. How is that so?

I think several factors are contributing to what I hope might become a lasting trend. The biggest one is a huge surge in weekly rents that began in FY21 and continued into FY22 and FY23.  Cotality data shows annual rental growth of about 7% in FY21, 9% in FY22, and another 9% in FY23.  Additional rental income would have certainly offset the impact of rising interest rates in FY23. (The pace of rental growth has since slowed but remains above inflation, with annual increases of about 8% in FY24 and 3.4% in FY25.) Another contributing factor is the ageing profile of property investors. According to the data, the largest cohort of Australian investors are aged 60 years or older. The FY23 data shows more than one in four investors, or 27%, are in this age group.

This is relevant because older people typically have more wealth, after a lifetime of work and decades of owning their homes, and therefore have more scope to pay down investment debt.  Retirement would also provide a new motivation to pay off debt, as would turning 60, since that’s when many Australians can access their superannuation in a lump sum under certain conditions. Additionally, a rising number of baby boomers have been downsizing in recent years, which is freeing up funds to pay off loans or fund the purchase of a new property investment with cash.  Owning property mortgage-free virtually guarantees strong positive cash flow, since loan repayments are by far the biggest cost for most landlords.

I’m also mindful that since the pandemic, we have seen a significant trend in investors choosing to buy cheaper properties with higher rental yields in regional areas or investing in capital cities in states or territories that are more affordable than Sydney and Melbourne. This may also be contributing to the trend in more property investors being positively geared.  Affordability is a key driver of this trend, but the pandemic also facilitated it. Lockdowns led to rapid changes in the industry, including enhanced online marketing tools and the provision of private inspections via video. Documentation like loans and property sale contracts went digital, making the financing and conveyancing processes more streamlined, and reducing the barrier of distance.

I also think more investors are employing buyers’ agents to do all the legwork for them, and this helps people access other states and territories to diversify their portfolios. Buyers’ agents are readily available across the country, so investors can buy in the best-performing markets with confidence.  For example, there is plenty of anecdotal evidence that East Coast investors have been buying in both the capital cities and regional areas of Western Australia and Queensland over the past few years. These states have been among the top performers in terms of home value growth for several years now. The best thing about more property investors being positively or neutrally geared is that it makes it easier for them to hold on to their investments for the long term.

The real wealth from property investment comes from capital gains, and we know that the longer you hold your investment, the higher your capital growth is likely to be.

By John McGrath, Chief Executive Officer of McGrath Estate Agents. 

It used to be the case that people who were priced out of expensive capital cities would do a seachange/treechange relocate to an affordable satellite town within commuting distance for work.

For example, Sydneysiders would look north to the Central Coast or south to Wollongong, while Melburnians would look west to Geelong or Ballarat, or south to the Mornington Peninsula.

Today, seachanging and treechanging has broadened to city switching, with more people opting to move states to retain the buzzy city lifestyle they love in a smaller and more affordable capital city.

This trend accounts for a large part of the price growth we’ve seen in Brisbane, Adelaide and Perth over the past two years.

The city switching trend started after the COVID boom in 2021 and during the subsequent market correction in 2022. In 2023, home values in Brisbane, Adelaide and Perth rose by 13.1%, 8.8% and 15.2%, respectively. In 2024, prices continued rising by 11.2%, 13.1% and 19.1%, respectively.

Despite this strong growth, Brisbane, Adelaide and Perth still offer better housing affordability than Sydney and comparable affordability to Melbourne.

The latest CoreLogic data puts median house prices at $981,000 in Brisbane, $879,000 in Adelaide and $839,000 in Perth, compared to $1,473,000 in Sydney and $929,000 in Melbourne.

But it’s not just housing affordability that is driving people to relocate to Brisbane, Adelaide and Perth. If that were the only factor, the city switch trend would have started long ago.

Arguably, the biggest social change COVID brought about was the option for many people to permanently work from home. This meant people could live anywhere, and the city switching trend shows many people prefer cosmopolitan city living over a slower-paced regional lifestyle.

Population data released by the Australian Bureau of Statistics (ABS) last month shows all capital cites experienced growth in FY24. However, growth was strongest in Perth at 3.1%, followed by Brisbane and Melbourne at 2.7% each, then Sydney at 2%, Canberra at 1.6% and Adelaide at 1.5%.

Digging down into the numbers allows us to see the city switching trend at play.

The only two capital cities that recorded net internal migration gains (that’s the number of people moving there from another part of Australia less the number departing) were Brisbane and Perth. The largest net internal migration losses were in Sydney and Melbourne.

The ABS also noted that population growth was greatest in the more affordable outer suburbs of the capital cities and “was driven by people moving into these areas from other parts of Australia”.

But not everyone relocating to smaller capital cities are doing so because they can work from home. Some are moving there because strong economic growth has led to more jobs and higher wages.

CommSec’s latest State of the States report, published last October, found Western Australia had the strongest economic growth of all the states and territories for the first time in more than a decade, followed by South Australia and then Queensland. These cities also had the strongest job markets.

On top of that, average weekly earnings are highly comparable at $1,954 per week in Queensland, $1,857 in South Australia, $2,157 in Western Australia, $1,986 in NSW and $1,928 in Victoria, according to ABS data.

So, it’s a combination of cheaper housing, remote working, growing state economies, and equivalent or better pay that is driving more Australians to try small city living.

These city switchers get to enjoy many of the same lifestyle benefits and job security as they had in Sydney or Melbourne, but with cheaper mortgages and less traffic congestion.

By John McGrath, Chief Executive Officer of McGrath Estate Agents. 

We are seeing good competition at auctions this Autumn, with the national combined capital city clearance rate holding above 60%, which is considered the benchmark for a balanced market.

Looking ahead, we’ll see a pause in market activity over the Easter school holidays in mid-April. In addition, with the Federal Election to be held in May, we’ll see fewer auctions scheduled for Election day (even though there is no reason to avoid election day!).

While the market is currently cooling across the board, it was interesting to see Sydney reverse the trend with an 0.3% median price rise in February after three consecutive months of falls.

The combined capital cities median price also went up by 0.3% after two consecutive months of declines, while the regional median continued its gradual but consistent upward trajectory.

The data tells us that prices are holding up pretty well even though market conditions have changed.

There is greater evidence of the market slowing down in the days-on-market (DOM) statistics.

Nationwide, it now takes a median 42 days to sell, which is up from 33 days a year ago, according to CoreLogic figures.

Along the East Coast, the time it takes to sell has lengthened in every capital city bar Canberra and every regional area bar regional South Australia over the past 12 months.

The current median DOM by city are: Sydney 48 days, Melbourne 51, Brisbane 27, Adelaide 36, Perth 19, Canberra 55, Hobart 56, Darwin 66. The median DOM by region are: NSW 62 days, Victoria 63, Queensland 35, South Australia 46, Western Australia 29, Tasmania 59, Northern Territory 98.

Several factors contribute to the length of time it takes to sell your home. Market conditions are one of them, and of course this is out of your control. But many factors are within your control. They include taking the time to choose your agent carefully and investing in high quality marketing.

So, don’t worry if your local market is weakening. There is plenty you can do to help your home sell within a satisfactory timeframe. Here are my three best tips.

1.Meet the market on price

Nothing will be more attractive to a buyer than an attractive price. Your agent will show you some comparable sales to help you understand local market values today. This will help you set an appealing asking price for private treaty, or a realistic price guide for auction (if allowed in your state or territory).

Setting the price is more of an art than a science. No two homes are identical, so you and your agent must compare your home to recent sales and adjust for any differences.

2.Quality marketing

Your marketing campaign must have broad reach to potential buyers, and must also inspire them to act and attend an open. Call in the professionals for great photography and persuasive copywriting.

3.Excellent presentation

The key to extracting a premium price for a property – in any location, at any time, in any market – is emotionally connecting a number of buyers to your home and creating competition between them.

The way to improve your chances of buyers falling in love with your home is superior presentation.

Don’t be offended if your agent suggests professional styling! The purpose is to present your home in its most marketable form to buyers. Universally appealing styling that helps buyers imagine themselves living there will enable more people to emotionally connect with your property.

Your home will receive the highest attention from buyers within the first 14 to 21 days of your campaign, so it’s crucial to get these three things right from the very start.

One of the great mistakes sellers make is setting the price too high, thinking they can simply lower it later if they need to. This damages campaigns from the start. You’ll never get those first 14 to 21 days back.

So, listen to your agent, look at the comparable sales, and meet the market on price to generate as much competition as possible. It’s competition that provides your best chance of a premium result.

By John McGrath, Chief Executive Officer of McGrath Estate Agents.