On the back of the COVID-19 crisis, the Australian property market has been thrown into focus and for many investors, they’ve never experienced anything like this.
While no one can tell you what will happen, we are quickly starting to learn some important lessons about the types of property we might want to be invested in the future.
With the economy being effectively shut down for many industries and sectors, we’ve already seen huge amounts of job losses, particularly in hospitality and tourism. And one of the main takeaways for property investors has been the quality of your tenants.
As we’ve seen, with the Government imposing a moratorium on evictions for six months, if your property is currently tenanted with someone who works in hospitality for example, you could find yourself in a tricky situation.
Clearly, some of the outer suburbs and lower socio-economic areas are going to be impacted most of all – both through the loss of income and jobs. But we also have to consider these impacts in other types of areas.
I’ve always been a strong proponent of investing in blue-chip suburbs. These locations will always experience high demand and strong long term growth. The eastern suburbs of Sydney is a great example.
And for the most part, these areas are going to provide far more financially stable people who are wanting to live there. However, for the first time in decades, we are now being forced to better consider who our future tenant might be in even those areas.
Bondi Beach is a perfect example. Bondi is attractive to a range of people, from professionals to young families, but there is a big portion of that suburb that is investor-owned and rented to the likes of international travellers, backpackers and even students.
These are the very people who in all likelihood, are the ones that have either lost their income or their job entirely. The people living in this type of suburb are prepared to pay higher rents for access to some of the best amenities in the country and a great lifestyle. The only problem is that now, some are not going to be able to pay their rent.
So it raises a good point in the short-term. If prices fall and you want to pick up a good buy in a blue-chip location, you need to really have a long think about what sort of tenant you going to be able to find.
That’s not to say you shouldn’t be buying in Bondi – it’s just something to consider at this point in time as we have never had to think about it before.
The reality is that if you are looking to buy in an outer suburb location, you simply aren’t going to be able to find those affluent renters like you might in the eastern suburbs. They are going to have lower wages, have less stable employment and be at more risk of not being able to cover the rent.
While interest rates are in the low 2s and investors can get mortgage holidays if their tenant does fall on hard times, things should still be OK for the vast majority of investors.
We are also starting see a sharp rebound in sentiment as many of the current restrictions are starting to lift. We are also starting to see it in property markets, Sydney in particular as home opens and in room auctions are now back.
But going forward, I think it will be more important than ever to not just identify blue-chip locations that will always show strong buyer demand, but also provide a steady stream of affluent tenants with the ability to weather situations like the one we are currently experiencing.
It will potentially add even more value to those types of locations in the years ahead.