Prestige property back on the agenda for investors

The prestige property market is continuing to recover and investors should consider looking at the more “premium” areas of the market, Australian Property Monitors economist Matthew Bell says.

Bell says while more “affordable” housing is continuing to gain attention from investors, the prestige market is also beginning to gain momentum.

“Recently I think investors have come back into that prestige market where they haven’t been looking there in the first quarter.”

Bell says there are significant capital gains to be made in prestige property, as some areas have seen prices fall by at least 20% from 2007 levels.

“While the yields aren’t as high on top end properties, there are still good capital gains to be made. In these prestige suburbs some prices have fallen up to 20%, so even if you are just making up the loss you can make a lot of money by entering now.”

“The best areas at the moment, or at least in the June quarter in terms of prices, were in Sydney in the North Shore and eastern suburbs. Investors are looking there, and they are also looking into prestige property in Brisbane.”

But Harley Dale, chief economist with the Housing Industry Association, says investors should look into the “affordable” area of the market with properties up to $500,000.

“The main properties are primarily in the more affordable end, what you’d class as the “lower” end I suppose, up to the $450,000-500,000 mark. That’s not to say there isn’t a little bit of evidence that a recovery is more broad based, but certainly the action right now is weighted towards more affordable property.”

Dale says potential investors should look at the affordable end of the market, as it will be the easiest area in which to invest and gain a solid return.

“This area of the market has traditionally been an area that “mum and dad investors” have always liked because the value of the asset has been one they can always enter into. Also, if you’re looking at under $500,000, if you’re in the right location you’ve got a pretty good guarantee on a rental income stream.”

“Melbourne is probably the standout market by a number of different measures, with the others being Hobart and to a lesser extent Sydney.”

David Airey, president of the Real Estate Institute of Australia, agrees with Dale that the “affordable” sector of the market is the best in which to invest, but says more prestige property is becoming a viable alternative as prices grow.

“All sectors have had a rise in the last three months in particular. Sellers have become far more realistic in what they’re looking for, and more expensive housing is becoming more attractive for investors and there is an increase in activity.”

Meanwhile, auction results have continued to perform well with volumes also on the increase. Melbourne recorded the highest results, with a clearance rate of 82%.

The Real Estate Institute of Victoria reports that out of 469 auctions, 383 were sold with total sales reaching $272.3 million. There is some good news ahead, with 682 auctions expected next weekend and 595 the week after.

Sydney recorded a 77% clearance rate, with 147 properties sold totalling $110.1 million.

Brisbane recorded 14 properties sold out of 29 auctions on the market, with a 47% clearance rate. Adelaide recorded a 61% clearance rate, but with only 14 properties on the market totalling $6.8 million in sales.