Alarm bells raised for WA investors

Troy Gunasekera, national manager of Property Club, said that while the grant is welcome for property investors, “they still need to exercise caution in signing up for a new house before the $20,000 grant expires before the end of the year”, noting they could be chasing “fool’s gold if they did not undertake careful research before making a decision to buy a property in Western Australia”. 

Mr Gunasekera’s top tips for avoiding falling into the trap of fool’s gold are:

1. Don’t buy property in mining towns 

“The resources sector in Western Australia is now booming again because of surging commodity prices. This has seen demand for housing in mining towns rise over the past year and, as a result, house prices.  

“It is no surprise that the best-performing area in Western Australia at the moment is the mining town of Newman, with a 25 per cent annual growth in house prices. 

“History shows that these areas are very high risk and unsafe for investors because when the mining sector booms, the value of homes in these mining towns surge, but collapse very quickly when there is a downturn in the mining sector,” the national manager said.

2. Take a long-term perspective to buying an investment property

“While the $20,000 grant for investors is attractive, property investors need to take at least a 10-year perspective to buying an investment property. A difference in just 1 per cent performance in your investment property compared to the overall property market can mean thousands of dollars in capital growth or loss over a 10-year period,” he said.

“Before buying a property, search the overall capital growth rates for that area over the past 10 years. For example, while the median price of home in Newman jumped by 25 per cent over the past year, during the past 10 years the annual median price in the town has declined on average by 9.3 per cent per annum.”

3. Consider the infrastructure 

“New infrastructure can play an important role in driving future capital growth of an area. For example, property investors should look at new capital expenditure planned by state government in Western Australia on transport. This includes new train links and road to outer suburbs, making commuting time faster to employment hubs,” Mr Gunasekera said.

“This new transport infrastructure will also make homes in these suburbs more desirable. Renters favour areas with good levels of transport infrastructure. Property Club is finding strong demand for standalone houses in Perth, and improving transport facilities will boost rental returns even higher.  

“A major trap for investors is to buy new homes in outer suburbs which have poor transport infrastructure and then are often forced to sell later at a loss because of a lack of demand for these homes. So, property investors should only focus on areas where there are good levels of transport infrastructure or newer areas where major transport links are planned in the next few years in Perth under the ambitious state government Metronet transport program.  

“The rental market in Perth is now running hot with very low vacancy rates. However, like capital growth rates, well-informed investors will achieve above-average rental returns if they choose the location of their investment property carefully.”

4. Look into proper property management 

“When you have selected a suburb, don’t make an emotional decision when choosing a specific home. Most first-time investors purchase a property they would like to live in. It is important to remember that the investment property must appeal to a tenant who will be paying the rent.  

“One of the biggest mistakes first-time property investors make is to try and manage the property themselves. 

“This is the number one reason why many first-time investors never go onto buying a second investment property because they select a poor-quality tenant without undertaking the necessary background checks. Selecting a poor-quality tenant can result in thousands of dollars of lost income and damage to the property. This is a big financial setback that many first-time investors cannot recover from.”