Your Complete Guide to Property Investment in the ACT
Property investment is a reliably proven method for wealth accumulation, particularly in high-demand regions like the Australian Capital Territory (ACT). After all, Australia's rising population is always going to need somewhere to live, especially in the capital, which underscores the strategic advantage of investing in property in the ACT.
While the property market can seem complex, it becomes much more manageable with informed guidance. With LJ Hooker's extensive experience and comprehensive market knowledge, you can establish your investment portfolio effectively. This comprehensive guide covers everything you need to know to invest wisely and make informed decisions on your next property.
Understanding the ACT property market
Over the past three years, the ACT property market has seen significant changes - from rapid growth to a more subdued recovery phase. Since March 2020, property values in the ACT have risen by 36.2% compared to pre-pandemic levels, reflecting strong long-term growth fundamentals that appeal to investors with a medium to long-term outlook.
According to ABC News, ACT housing values surged during the early months of the pandemic, peaking in March 2022. Since then, the market has undergone a correction, with prices currently sitting 5.76% below that peak. However, recent months have shown modest price increases, indicating a slow but steady recovery.
Canberra’s property market has experienced notable increases in both house and unit prices, with growth rates of 12.2% and 11.7% respectively. Although the market remains below peak levels, it continues to face challenges like high interest rates and limited new housing supply. For investors, this may be an opportune moment to enter before prices rise again, especially if interest rates ease.
The ACT rental market remains generally stable, supported by consistent demand and balanced supply, which points to steady rental returns and a lower risk of extended vacancies.
Essentially, the ACT property market offers a balanced combination of opportunity and caution. Entry into this market may be advantageous, particularly with a medium to long-term outlook, given that prices are below their peak, and signs of gradual recovery, coupled with a robust rental market, are evident.
Investment strategies: positive cashflow vs. negative gearing
There are two main approaches to structuring property investments in the ACT:
Positive cashflow property
This occurs when the income generated from an investment property surpasses its operational costs, including mortgage repayments and maintenance expenses. The property will be operating at a profit, with a positive rental yield, which is the income expressed as a percentage of the property's total value.
It's important to keep in mind that when values rise, rental yields contract. This can make it more difficult to establish a positive cashflow investment property in the ACT.
Negatively geared property
Conversely, a negatively geared property operates at a loss, as the interest on the home loan exceeds the rental income. Even so, you can still benefit from tax deductions, and this method is popular among buyers making the most of capital gains. It allows investors to manage investment property at a loss that's mitigated by tax breaks but produces profit in the long run.
Negative gearing is popular in the ACT, as values have risen rapidly in recent years. Even so, your own investment strategy will depend entirely on your income.
Reviewing your finance and leveraging equity
There are several pathways into the ACT property market. You may not have considered property as an investment if you're looking to buy your first home, but it's certainly feasible. As long as you meet certain criteria as a first-home buyer, it's still possible to buy as an investment. You can even apply for the ACT First Home Owner Grant (FHOG) - offering $10,000 towards your first home.
Another common strategy is leveraging equity in your existing property. Equity is the difference between your home’s market value and the amount left to pay on your mortgage. You can gain access to this cash by re-mortgaging your current home and then putting the money towards your next investment. A notable benefit of this method is that you are saved the hassle of having to save up for a deposit, which can take months if not years.
As you evaluate your borrowing options, consider the pros and cons carefully - the MoneySmart website is a helpful resource to guide your decisions.
How to find the right investment property in the ACT
Finding an investment property in the ACT shares similarities with buying your own home, but there are some processes you might not be familiar with. For instance, did you know that median value growth and rental yield represent capital gains and cash flow? It's well worth bearing this in mind when you put together your investment strategy - to help you better understand these calculations, consider taking a look at the CoreLogic RP Data website for in-depth information on the property market.
Whether you've bought property in the ACT before or not, it's important to conduct thorough research when seeking out a suitable investment property. At LJ Hooker, we recommend that you enlist the services of a financial planner, mortgage broker, solicitor and buyer's agent. These professionals can streamline the purchasing process, minimising potential complications.
A reputable solicitor can be found via the ACT Law Society website, and there are many other websites to help you find the perfect financial adviser. Assembling an expert team to facilitate the purchase of your ACT investment property is a significant step towards success.
Investment taxes in the Australian Capital Territory
Once you've decided to invest in an ACT property, it’s essential to budget for unavoidable fees and taxes heading your way. A good way to help you do this is to pay a visit to the ACT Revenue Office. Stamp duty and land tax are two primary obligations. Additionally, if this is not your initial property purchase, you will not qualify for first-home buyer exemptions.
Land tax, for example, is fixed at $1,612 from July 1, 2024. You'll also pay a marginal rate of 1.24 percent of this figure if your investment is worth more than $275,001.
Be sure to take a look at the ACT's guide to conveyance fees, which will help you understand what you'll owe when buying in the region. You should also try to remember that an investment home loan is more likely to have a higher interest rate than it would be for owner-occupiers. Thus, using a reputable comparison website to find the finest deal out there comes highly recommended.
Certain tax deductions may still apply, reducing overall costs. There are property management fees, repair costs, and legal and mortgage fees, among others. Be sure to take a look at the Australian Taxation Office to find out what you may qualify for when owning your own rental property.
Managing your investment property
With contracts signed, finances secured, and keys in hand, it’s time to decide how you’ll manage your investment. While some landlords enjoy hands-on management, it can quickly become time-consuming. Ultimately, how you look after your investment is your choice, but engaging a property management agency is well worth considering.
LJ Hooker’s experienced property management team is dedicated to handling everything from tenant communication and maintenance to rent collection - allowing you to focus on enjoying the benefits of your investment.
Once you’ve evaluated your options and the time involved, you may decide to entrust the day-to-day operations to us - so don’t hesitate to contact our team at LJ Hooker today to learn how we can support your investment.
DISCLAIMER - The information provided is for guidance and informational purposes only and does not replace independent business, legal and financial advice which we strongly recommend. Whilst the information is considered true and correct at the date of publication, changes in circumstances after the time of publication may impact the accuracy of the information provided. LJ Hooker will not accept responsibility or liability for any reliance on the blog information, including but not limited to, the accuracy, currency or completeness of any information or links.
