22 Apr 2024

5 Reasons to Keep Your Investment Property in Today's Market

Investment property owners are facing a tough financial squeeze currently. Interest rates on residential mortgages in Australia are sitting at over 6% - levels not seen since 2012.

With property values largely stagnant, some landlords are finding their rental income is simply not enough to cover their mortgage repayments and operating expenses.

In this climate, the temptation to sell and cut one's losses is strong. However, history and expert forecasts strongly suggest holding firm as a landlord could pay off handsomely in the long run.

Trying to "time the market" by selling now and buying back in later is an extremely risky proposition.


Current Brisbane Property Market Realities:

Over the past year, Australian housing values have declined 7.8% according to CoreLogic's Home Value Index, with Sydney and Melbourne seeing the sharpest drops at 13.8% and 8.1% respectively as rising rates and inflation have impacted affordability. 

Brisbane has fared better with home values down a more moderate 4.3% over the same period.

At the same time, national rental rates increased 9.5% from a year ago as housing supply remains extremely tight. Brisbane's rental market is especially starved for available properties, with SQM Research showing just 0.6% vacancy rates and rents spiking over 15% year-over-year.

The impact of these conditions is evident in properties taking much longer to sell while rental listings are being snapped up rapidly across the city and southeast Queensland region.

For Brisbane landlords, the combination of higher mortgage costs and rapidly rising rents has provided some relief on cash flows compared to other cities. Even so, RateCity data shows that with Brisbane's lower median home value of $804,000, the monthly cost to service that mortgage has still risen over $1,300 versus last year as variable rates have soared.

With challenges like these, it's understandable that some local investors are questioning whether to hold or exit the property market entirely.

That said, multiple factors and expert forecasts indicate that staying the course as a landlord could ultimately pay dividends down the line, despite the difficulties of the present circumstances.


1. Interest Rate Relief on the Horizon 

While rate hikes by the RBA have been relentless, hitting 10 consecutive rises since May 2022, there is a broad consensus that we are nearing the peak. According to Metropole Property Strategists, most economic forecasters expect the cash rate to top out under 4% in 2023.

As inflation slows, their projections have rates returning to around 2.5% by 2025.

For Brisbane landlords with an $800,000 mortgage on their investment property, this could mean monthly payments dropping from the current $4,440 back down to around $1,840 - providing substantial cash flow relief. 

2. Migration Fuelling Ongoing Rental Demand

Even with property price declines in some markets, the rental crisis facing Australia appears likely to continue due to mounting population pressures. The Federal Government's budget projected net overseas migration to hit 495K by 2027.

Combined with the latest statistics showing a net annual migration gain of over 250,000 across the nation, this influx will only increase the already insatiable demand for rental housing supply in major cities and regional areas.

3. Long-Term Capital Growth Prospects

While the latest dip has dampened property price growth, the long-term trend remains highly positive, particularly in markets like Southeast Queensland. Brisbane property prices have surged by over 60% in the last five years alone according to CoreLogic data.

Looking ahead, Property Update Research forecasts Brisbane real estate prices to increase by 22% through 2025, and over 30% cumulatively by 2030.

Selling investment properties now locks in recent losses but misses out on potentially robust appreciation over the next property cycle.

4. The Power of Building Equity 

One of the key benefits of buying and holding real estate assets is the ability to build equity over time as mortgage principal is paid down and property values appreciate.

As this equity builds, investors can tap into it to renovate and add value, pay for future investment properties and opportunities, or access equity loan products and lending options to improve cash flow.

According to OpenAgent calculations, a property purchased for $500,000 that grows 5% per year while the loan is paid down 3% each year would accumulate over $170,000 in equity in just 5 years.

5. Tax Implications to Consider 

While selling an underperforming or negatively-geared investment property may seem enticing, doing so triggers capital gains tax on any property appreciation since the original purchase.

By holding onto the property, not only can this tax burden be deferred, but property investors can also take advantage of depreciation schedules and expenses to offset tax liabilities.

Working with an accountant and financial advisor is prudent to maximise these types of tax benefits for landlords.

Navigate Your Property Investment with Aurora Realty's Expertise

If you're like many property investors right now, you're probably wondering whether to buy, sell, or hold. At Aurora Realty, we're here to give you the clear, straightforward advice you need to make these tough decisions. 

With our deep understanding of the market and dedicated property management services, we aim to ensure your investment strategy is both successful and stress-free. If you have any questions, get in touch today. 


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