INVESTORS should aim to buy properties in western Sydney if they want higher returns and a better chance of getting loans from banks, experts claim.
Real estate research showed properties in the region offered some of the highest rental returns in the city, as well as capital growth potential — critical attributes in the current lending environment.
That environment has seen banks begin to restrict investors’ access to loans, especially among those wanting interest-only loans or to borrow with less than a 10 per cent deposit.
This two-bedroom apartment at 4/97-99 The Boulevarde, Wiley Park, will set buyers back $479,950.Source:Supplied
Binvested founder Nathan Birch, who owns more than 200 investment properties, said investors could adapt to the changes by considering properties with high rents.
“Cash flow is important to make sure you can hang on to the bill and not dip into your own pocket,” Mr Birch said.
“There’s a difference between buying a property and keeping it.”
Investors should stick to two other criteria when selecting properties: buy below market value and in areas with good capital growth prospects,” Mr Birch added.
“There are always opportunities to buy under market value … whether it’s the end of a boom, during the GFC or in (the middle of) a boom,” Mr Birch said.
Mr Birch recommended buying in areas like Liverpool, Mt Druitt, St Marys and Penrith because of coming infrastructure improvements, including Badgerys Creek Airport.
“If you’re sticking to the heart of Sydney, units in Penrith, Blacktown, Mt Druitt, Liverpool are the bread and butter markets,” Mr Birch said.
An analysis of CoreLogic data showed typical properties in some of the suburbs of these regions had rental yields of close to 5 per cent.
This three-bedroom house at 55 Parker St, Penrith, has a price guide of $525,000 — $569,000.Source:Supplied
Units in Wiley Park had the strongest cash flow in western Sydney at an average of 4.8 per cent. Buyers in the area could buy two-bedroom units for about $450,000 and expect weekly rent of roughly $380.
Buyers in Penrith, meanwhile, could buy three-bedroom houses for about $550,000 and get $410 per week in rent.
Hotspotting founder Terry Ryder agreed that investors would need to follow the infrastructure trail.
Infrastructure in western Sydney is expected to lead to a local housing boom. Picture: Jonathan NgSource:News Corp Australia
“The biggest single catalyst to Sydney’s property boom has been the very high levels of spending on infrastructure, especially road and rail links,” he said.
“There is plenty more to come, especially in western Sydney, led by the second airport at Badgerys Creek.”
Mr Ryder added that investors would struggle to find properties with the potential for positive cash flow in most areas unless they included a secondary source of income on top of conventional rent.
“The best opportunities will come from properties that have more than one income, such as homes with granny flats in the more affordable areas such as the Blacktown and Liverpool regions.”
15 Shirley St, Blacktown, has ‘potential for a second dwelling’ and has a guide of $690,000 to $750,000.Source:Supplied
Mark Vella of Starr Partners Blacktown said some buyers in the Blacktown region, particularly mum and dad type investors, were already targeting properties with dual income.
“That’s the way they are going to get the returns they are looking for as positively geared as they can be,” he said.
McGrath Liverpool agent Eva Frketic has also noticed the trend in Liverpool.
“Even if (the property) doesn’t have an existing granny flat, if there’s the possibility to construct one, there is definitely a strong demand for them,” Ms Frketic said.
This four-bedroom house with existing granny flat in Carnes Hill is prcied at $975,000 to $1.025 million.Source:Supplied
Raine and Horne Wetherill Park’s Sam Ruisi said most investors were running the numbers and starting to realise granny flat investments stacked up.
“You buy a house for $700,000 and get $450 per week return, (but if) you spend $130,000 on a granny flat, you’re getting another $450 a week,” he said.
At the heart of the new lending environment are recent changes driven by the Australian Prudential Regulatory Authority.
APRA has been encouraging banks to keep new interest-only loans to 30 per cent of total new housing-related mortgage lending.
Banks are feeling the pressure, with the share of interest-only loans representing almost 40 per cent in the last quarter of 2016.
Further restrictions include strict limits on the volume of interest-only loans at loan-to-value ratios above 80 per cent, and stronger scrutiny of any cases of interest-only loans being granted at an LVR above 90 per cent.
APRA also reinforced the importance of remaining below the 10 per cent growth cap for new property investor loans. Investor lending turbocharged to a 27.6 per cent growth rate over the 12 months to January, the fastest growth since mid-2014, Australian Bureau of Statistics data indicate.
WHAT KIND OF RENTAL RETURNS CAN YOU EXPECT?
Newer properties often offer lower rental returns but investors can get good yields even on newly built properties in the Blacktown area.
Typical rents for two-bedroom properties in the Fairwater development range from $500 per week to over $550, while four-bedroom houses with studio lofts rent out for more than $1000. Prices range from $560,000 to $1.066 million.
Investors can nab a home in the Fairwater development for between $560,000 to $1.066 million.Source:Supplied
This four-bedroom house at 51 King St, Glenbrook, sold in May for $1,310,565.Source:Supplied
Investors appear to have noticed the value potential: roughly 30 per cent of buyers so far in the development have been investors.
In other suburbs within the west such as Mount Druitt, new homes can rent for more than $500 per week and typically cost about $650,000 — a yield of about 4 per cent. The Sydney average for houses is 3 per cent.
Further west, prices in Blue Mountains enclaves like Glenbrook offer good capital growth prospects, with local agents noting prices were already being pushed up by investors — a pattern set to continue as more buyers became priced out of Sydney.
Four bedroom houses, like 51 King St, Glenbrook, are for sale for about $1.189 million to $1.299 million.
Comparable properties closer to the city sell for $2 million or more.
