Investment opportunity comes knocking

Price growth has softened and demand is weaker but buyers shouldn’t sit on their hands. The market is full of opportunity for investors. Look for the highest yields at the lower end of the market; now that most of the government assistance has dried up, you won’t find too much competition from first-home owners.

The best-performing Sydney regions for house rental yields include the south-west, at 5.3 per cent, and the west, at 5.1 per cent. These also present the best rental yields for units, at 6.8 per cent and 6.1 per cent.

Although finance costs are increasing because of rising interest rates, the housing investment climate is improving and should continue to do so into 2011.

The next rise in official interest rates is unlikely until February or March and will be driven by the predicted acceleration of Australia’s economic growth. The time might be right to consider a fixed-rate loan, which would enable investors to maintain stable financing costs.

Price growth for both houses and units is expected to remain benign over the next six months, as the recent rate rise and the holiday slowdown period affect buyer demand from owner-occupiers.

But ongoing housing stock shortages and population growth will ensure constant demand for rental properties, exacerbated by ongoing affordability barriers for first home owners. This will result in yields rising as rents increase.

Dr Andrew Wilson is the senior economist for the Fairfax-owned Australian Property Monitors.

Dearest house

2 Dorset Road
Northbridge
Six-bedroom house on 754 sq m with water views.
Sold at auction through Justin Ferguson Property for $3.6m
It last traded for $750,000 in 1996.

Dearest apartment

19/55 Wolseley Road
Point Piper
Three-bedroom apartment with harbour views.
Sold before auction through Richardson & Wrench Double Bay and GoodyerDonnelley for $4,275,000
It last sold for $2.17 million in 1998.

Graph: Auction action (Includes midweek)