Investing in Canberra

[Phil87]

Howdy,

Was just wondering how many SS members have IP's in the ACT (or outlying area's), or what peoples opinions are about investing in Canberra?

I have spoken to a few investors at work who seem to have investments in every state except for the ACT, they believe the housing market here is way too pricey and too much risk considering how many public servants there are.

Cheers

Phil

 

[Murphy69]

Why do you think a large number of Public Servants create risk?

Public Servants, Defence etc have very secure jobs, and many people posted to Canberra receive employer subsidised rent. Even when there is significant govt cost cutting, the APS in Canberra rarely suffer.

The rental market in Canberra is always very tight. I've turned up to a rental open house and there has been 20 people there. If you don't get you application in straight away, you will miss out.

Canberra prices do seem crazy, but growth in Canberra tends to be pretty strong. You can't really compare Canberra to a rural city of about the same size because the economics in Canberra are quite different.

 

[Phil87]

Personally I dont see why so many public servants would create a risk, but I have been told to think of the following scenario "Next Government decides to reduce 30% of public servants, what would this do to the ACT economy"...from what I have been told in the past the government at the time decided to reduce public servants by a relativel large %.

If Canberra rental market is very tight, and Canberra as a whole is growing at a good rate...wouldnt that make the ACT as an ideal investor market?

 

[rugrat]

"Next Government decides to reduce 30% of public servants, what would this do to the ACT economy"...from what I have been told in the past the government at the time decided to reduce public servants by a relativel large %

You have obviously never been a public servant.
The government has never (in my experience) 'reduced' the number of public servants. They have offered redundancy packages and put a hold on 'new' recruitment, but never actually reduced the number of employees - more just keep it stagnant for a while. The other thing is, we are not just talking about one government deptatment or agency here - there are LOTS. Centrelink, Immigration, Defense, Medicare, FAO, ATO, etc, etc seriously could think of at least 20 odd just off the top of my head. Usually when a politician gets a bright idea to limit growth in one area, it is because there is growth in another.
It is alot harder to put public servants out of work then it is for an employee in the private sector. They are a bit like cockroaches, hard to get rid of even when they aren't neccessarily wanted. Keep in mind that the worse our economy is, the more public servants the government will need to employ to look after the various unemployed. Being a public servant is probably one of the safest jobs in Australia.

 

[rugrat]

I think ACT is a reasonably good place to invest, obviously, I have my PPOR and am building an IP here. BUT it does depend on your knowledge of the area, you resources and your overall strategy. No different from anywhere else I guess. The biggest barrier to entry though is definitely the price. I cann't see property here loosing its value, but you need to be able to afford to buy into the area in the first place. Yield is certainly very average here, but often you are banking on capital growth and increased yeild over time (purchase price isn't cheap, but neither is rent - both continue to climb rather well).

You will never have a shortage of tenants to choose from in Canberra, the rental market has in the whole 5yrs I have lived here has had a 1% or less vacancy rate. It is tough work getting a rental property here and involves a lot of dedication by tenants to scour ads, attend numerous open homes, put in lots of applicantions and hopefully here back from at least one. Particularly in Jan, Feb and March, when competition hits it's peak.

 

[Jamie M]

Hi Phil

I have properties in Nicholls, Calwell and Queanbeyan.

Nothing wrong with investing in Canberra. The growth here has been consistantly strong over the last decade and the yields aren't too bad.

The kicker for me is I'm able to self manage my Canberra IPs, I have a decent idea of the market and if I want to renovate myself...I can do that too. Also helps that there's a few tradies in the family who are happy to fit the odd kitchen

You can also claim purchasing costs within the first year of purchasing an IP in the ACT- ie, purchase a $400k IP now and claim the $15k stamp duty when completing your next tax return

Also, the rental demand here is crazy! You won't have to stress too much about vacancies.

The public servants aren't going anywhere - if anything, more of them seem to be pouring in.

The downside to investing in Canberra is the fact that it's expensive. It's hard to find a simple 3 bedroom house for less than $400k these days. The units are also fairly pricey. For that reason, you're unlikely to find any CF+ or CF neutral deals. Unless.....you venture accross the border to Queanbeyan and tart up a cheap little unit

Cheers

Jamie

 

[rugrat]

Even Qbn it's getting harder and harder to find anything cheap.

 

[Phil87]

After speaking to colleagues at work I was under the impression that I had overlooked something major about IP's in Canberra.

So with the IP's that you guys have in Canberra, how long was it before the property turned in CF neutral?

I looked into the house that I recently purchased for $390k (to be built) and looked at similar houses (same style(s) from same builder) in the same area (slightly smaller property size) and they are currently renting for ~$440pw (on 5 occasions that I have noticed)...on face value it appears that these properties could be CF neutral after a few years and possibly increase in CG?

 

[rugrat]

My IP is still in the process of being built (only 10mths later then completion was originally due ). When we signed contracts (June 2009) rents were looking to be around $420p/w. If it were available to be rented out now it would rent for about $470-480 p/w - if it doesn't go on the rental market until Jan/Feb (possible, depending on how much longer the builders take) it will likely be closer to the $500 mark. Our purchase price was $420k, We had an offer for it a couple of months ago for $460k (wasn't even started to be built yet). Not sure what it will actually be worth, the bank valuation came in at approx $445k. It is a small 3 bed, double garage, ensuite, average block (420m2) in Casey.

There are likely much better investments out there, but this one suited our needs - particularly given our financial situation, strategy and SANF.

 

[Jamie M]

Not sure what it will actually be worth, the bank valuation came in at approx $445k. It is a small 3 bed, double garage, ensuite, average block (420m2) in Casey.

I looked at a smallish 4 bed house on the same size block on Overall St yesterday - it was going for $525k.

Gotta love OTP purchases in Canberra....looks like you'll have made a decent profit by the time you finally get the keys

Jamie

 

[Jamie M]

So with the IP's that you guys have in Canberra, how long was it before the property turned in CF neutral?
QUOTE]

Hi Phil

Mine are all slightly negatively geared - more of a reflection on the high LVR loans I take out on them. After depreciation, a couple of them are very close to neutral. After a few more rent increases they'll be looking after themselves.

Cheers

Jamie

 

[c9806103]

I have a great performing IP in the inner north and both growth and yield have been fantastic. Yes the rental demand is insane, this time when my tenants moved out after 12 months, I had new tenants on a new 12 mth lease signed up 3 days later with the rent increasing by $40/week This is pretty typical of the area and rents have continually followed a similar path. The property is a great one, scarce and top quality in a very central/trendy location which started to gentrify and become trendier probably 10 years ago, but has continued and still is today.

The public service automatically get the constant CPI pay rise every year and what that does is just create continued upward pressure on the entire ACT economy. The economy down there is pretty insane and stronger than anywhere else in the country, bar mining towns. There are always the fear mongers talking about a downsizing of the public service, but it never happens. If it does, they more than likely just move the same people into other/new departments anyway, so the jobs just move around.

The drawback with Canberra thesedays is that the current buy in price seems quite high compared to most other parts of the country. There are other places where properties are cheaper and you could add more value, but won't have the same upward/constant pressure and demand of Canberra.

Canberra is trickier to add your own value however, as most of the places are *reasonably* new, i.e. 1970's at the oldest. So you find it tougher to come across complete dumps that you could transform/reno etc.

I can't see Canberra going backwards at all, the place just spells growth, growth and more growth for the next 10+ years and if anything, all it will do is stagnate at the current prices for 1-2 years until the rest of the country catches back up, as its had some excellent growth in recent years. Then of course, it will start to pick up and grow some more.

I use my Canberra IP as my anchor, because it's so stable and safe, that is the backbone of my other investments. Basically nothing happened to Canberra house prices right through the entire GFC. There were still constantly plenty of people there with the money to pay the pre-GFC prices.

 

[Marty McDonald]

I lived in the act for 6 years and got great gains
out of property there. I was always wary
of the change of government risk though. I had that
many people remind me of what happened in
96 when Howard got it ie mass unemployment. I would
not choose as an investment destination for
that reason.

 

[rugrat]

I lived in the act for 6 years and got great gains
out of property there. I was always wary
of the change of government risk though. I had that
many people remind me of what happened in
96 when Howard got it ie mass unemployment. I would
not choose as an investment destination for
that reason.

What risk??
What 'mass unemployment' in '96???

Sorry I must be missing something here.

And as far as I am aware, there has never been an oversupply of houses in the ACT. The property marke here has always had reasonably high demand,and the ACT government release land in such a slow methodical fashion and builders have so much work lined up that there is unlikely to be an oversupply anytime soon. Things may change (anything is possible) but I certainly doubt it for the near to mid term future (say 10yrs at least).

 

[Jamie M]

What risk??
What 'mass unemployment' in '96???

Sorry I must be missing something here.

I was thinking the same. The good old ACT is a pretty safe bet.

 

[geoffw]

I have seen prices go down in Canberra. There have been public service cutbacks which have had led to a big change to supply and demand. Friends who bought a house in the early 70s sold it for about the same price in the late 70s. There was I think another cutback in the 80s which also kept house prices suppressed.

However cutbacks in the 90 did not have anywhere near the same effect. That may have been because the ACT economy had become more diverse- perhaps with the number of people who took packages and who used that money to start other businesses, or perhaps with the rise in strength of the IT sector in Canberra.

I'm not one to try and predict the future though. There does appear to be a big rise (literally) in high density housing recently which may alleviate some of the pressure on rental housing. There may be land releases or public service cutbacks which do affect house prices.

But I did not forsee the house prices rises which have taken place, but I have been glad to accept them.

 

[tcocaro]

96 has stuck in many builders & peoples minds a period of "nothingness" - very little money was made during this period (leading up to 96). So it did happen but that 14 years ago now.. time has really moved on. Canberra has reached critical mass now and shouldnt be considered on par with some country town meaning there should always be activity be it down or up but not left in the wilderness. Particularly since the private sector has now surpassed the public sector which is pretty amazing given this is Canberra we are talking about.

The comment regarding change of government is right. There is a perception that a Libreral government will reduce the size of government whereas Labor will keep or bloat it up so a change will impact disposable income and local employment (for Canberra). Whether you think this is the case or not is irrelavant the perception of it occuring is sufficient for property to take a hit.

These are points of discussion held firm by local Canberrians its something say a Sydney-sider would find amusing because he\she just doesnt understand the local dynamics.

What risk??
What 'mass unemployment' in '96???

Sorry I must be missing something here.

And as far as I am aware, there has never been an oversupply of houses in the ACT. The property marke here has always had reasonably high demand,and the ACT government release land in such a slow methodical fashion and builders have so much work lined up that there is unlikely to be an oversupply anytime soon. Things may change (anything is possible) but I certainly doubt it for the near to mid term future (say 10yrs at least).