Property Prices Continue to Soar in Australia: How Does this Impact Investment?

In many Australian capitals, new reports show that rental yields have dropped. It is widely predicted that this is the result of booming house prices which have been clipping profits from rent. This also has caused a lot of investors to rethink where they will invest or buy. Traditionally, many investors tend to invest in areas that are close to their capital cities, but these days many are looking someplace else – whether regionally or in other states to get much better returns.

There is no question that the COVID-19 which caused a global pandemic has hugely affected countries. It has affected Sydney and Melbourne – two with the biggest property market in Australia.

So, what factors are driving the prices to soar?

Travel restrictions.
The cities have suffered huge drops in terms of rental yields mainly because of the imposed travel restrictions which prevented international students to come to the country. International students were the primary target of rental properties prior to the pandemic but because of the travel bans, it wasn’t possible.

Median house prices.
The median house prices soared to past $1 million. Because of these factors, Sydney’s house rental yields took the biggest dip over the September quarter with a 3 percent drop. Across the year, it reached 9.3 percent.

Early this year, reports have revealed that Melbourne was to become the cheapest city to rent a house and this occurred due to the tightening rental conditions in Adelaide and Perth could increase rents in these two states in the next several months – this alone made Melbourne the city with the most affordable rental properties.

Many experts have already predicted that this was going to happen and that rental yields in capital cities will experience decreases given that house prices reached double-digit across the year. But investors are seemingly unfazed and many had started to look to invest for capital growth from selling their houses.

Change of strategy
The increase in house prices is giving investors time to think and change their strategy. A lot of investors are slowly shifting their focus to Adelaide instead of Sydney or Brisbane because of its potential to give them a bigger bang for their buck. Brisbane is stopping a lot of investors because for the past six to nine months, suburbs have been experiencing house increases.

The good thing that has come out of this is that the market is busier than ever. You’d think that the pandemic will discourage investors and buyers but it seems like that is not the case. Those who find house prices too pricey in Sydney and Melbourne are not discouraged, instead they look at other options such as investing somewhere else – somewhere much more affordable for them. At the moment, there are two groups of investors according to industry experts. One group is for lower-priced ($500,000 to $600,000). The other group is in the higher price range ($800,000 to $1.2 million). Investors who have enough money are not in any way scared of the price increases but are instead looking for an alternative.

In the next several months, as borders open and international tenants return, yields are predicted to pick up so it is going to be an interesting time ahead.