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Investing in Properties - what to look for



From Money Magazine, March 2003

The investment appeal of residential property may have slipped, but there are still plenty of opportunities, as Pam Walkley reports.

Real estate, particularly residential apartments, has been very attractive to investors over the past few years. The sharemarket has wilted while the property market has boomed.
But now the tide is turning for residential real estate. While there are unlikely to be big falls in house values – particularly in major city markets – investors cannot expect the same levels of double-digit capital growth they enjoyed over the past few years.

Investors have flocked to residential property in the wake of a weak sharemarket and overall uncertainty. So what to do now when the outlook for the sector is not so rosy is a question investors are asking.

Logically it would seem that at some stage the sharemarket will turn, so investors should be at least investigating the opportunities. But the threat of war has added yet another layer of uncertainty.

With real estate still high on the agenda for investors, the experts are advising them to look at property sectors other than residential. Those that want to stick with residential need to be much more selective and take a long-term view as strong capital growth is no longer automatic. “Rapidly rising markets cover up mistakes,” points out Rod Cornish, head of property research at Macquarie Bank. “Speculative gains are not on offer but it is still worth considering residential property if you take a five- to seven-year view.”

He advises investors to stick with established houses and only venture into apartment investments in blocks where there is a large degree of owner-occupation. As for location, close to CBDs and beaches is the way to go. “Stick to more affordable property where you will fare better in the rental market,” Cornish says.

Outside the cities, Cornish says demand for country weekenders within two hours drive of major CBDs will increase over the next couple of years as people are priced out of the beachside markets.

In the beachside retreat areas, Cornish says investors should look for cheaper stock, back from the beach but maybe on an escarpment with views.



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