A new report has outlined issues baby boomers heading into retirement need to be aware of when looking for solid investment properties.
The RiskWise and WargentAdvisory “Impact analysis: Negative gearing, CGT and Australia’s residential property markets report” said those aged roughly between 50 and 70 are looking for ways to ensure they can support themselves in retirement.
However, government intervention, credit restrictions and potential change to negative gearing and capital gains tax if Labor wins the next federal election have cast doubt as to how baby boomers should proceed.
RiskWise Property Research chief executive Doron Peleg said the best way to generate long-term healthy rental return from investment properties alongside long-term capital growth is to do the research and buy right.
“The objective is to buy and hold, but you also need to know where to buy and which market you are targeting – primary, which is eligible for tax concessions, or secondary, which is not eligible for tax concessions,” Peleg said.
“Investors need to understand that if they try to sell these properties, they will be in the second markets so if the reforms do take place, they won’t be qualified for tax concessions.”
It is also important for baby boomers to look for properties with good long-term rental return and long-term capital growth.
“These can often be found in the middle rings of the city and have the added bonus of not only being suitable to families, but also have undersupply issues, which make them more likely to rise in price,” Peleg noted.
“It’s true that in the first couple of years prices could go down in some areas because they carry a high level of risk due to credit restrictions, a drop in foreign investors and the reforms to negative gearing and capital gains tax if Labor wins the federal election, but after this prices will go back up and then you have a property suitable for owner-occupiers.
“In addition, there are property markets, such as south-east Queensland, which have many areas where houses carry only a low level of risk and are projected to deliver solid capital growth, particularly in the medium and long term.”
In addition, investors should choose properties that appealed to families, who were more likely to be long-term tenants than singles, the report said.
This is especially the case if they have children and the unit is in a school catchment area.
The property must also have proximity to good transport and parking is a must, Peleg said.
“If you can attract good tenants, you can also reduce the costs associated with the changes of tenants, such as letting fees and other expenses. It also means there’s a low vacancy rate,” he noted.
“In addition, good tenants mean you don’t have to spend as much on maintenance as they are more likely to look after this property.”
He said due to undersupply and severe unaffordability in places such as Sydney, Melbourne and many areas in south-east Queensland, there was a strong demand for such properties by owner-occupiers, so not only were they likely to achieve healthy capital growth, the potential audience in the market was higher.
This was opposed to small units with one or two bedrooms, which were unsuitable for families and attracted little demand from owner-occupiers and therefore presented greater risk, he said.
“The number one strategy in property investment is to have low-risk, good long-term tenants and projected return, along with good strategies regarding any potential changes to negative gearing if Labor were to be voted in,” he said.
