Where to invest in property in 2011

In my blog last week I explained how the property markets will be very different in 2011 and how for those that take action (the right action), this will be a great year in property.

That’s because, for at least for the first half of the year, we’ll be in a buyers’ market.

After five interest rate rises in 2010 affordability has become one of the key issues that will limit property price growth in some suburbs in 2011.

Affordability issues and market confidence have fragmented our property markets and led to a three-tiered market, especially in Melbourne, Sydney and Brisbane.

The more expensive properties in the top end, more prestigious suburbs are likely to decrease in value over the first half of the year. But these suburbs have always been more volatile and top end properties are not what I would have ever called investment grade properties.

Similarly, the outer suburbs, which are usually where home owners are more interest rate sensitive, and where many are currently struggling to meet their mortgage payments, are areas where prices are likely to languish in 2011.

And of course a glut of off the plan properties coming on stream in the CBD’s will mean potential problems there also.

On the other hand, many of those who own properties in the inner and middle ring suburbs of our capital cities, which have exhibited strong capital growth over the last few years, are sitting on a heap of equity and won’t really be worried about affordability.

This means while the news is not the best for first home owners and renters, the current markets offer good opportunities for home owners who want to get into property and investors who buy selectively.

But be wary – we’ve moved into the next phase of the property cycle – a time of increased risk for many investors because they won’t be carried by rising markets, yet one of great opportunity for those who know how to play the game.

The lesson from all this is that not all properties will increase in value over the next year or two. Which means that if you want to grow a significant investment property portfolio, you will need to own the type of property that outperforms the market averages.

By the way… this is not hard to do. For example, buying an established property “with a twist” is a great strategy in today’s market.

What do I mean by with a “twist”?

One with some scarcity or one that you can add value to through renovation, or a property with a hidden opportunity that others have missed.

Because investors won’t be able to count on strong capital growth this year, to be successful in this new stage of our property markets, smart investors will buy a property below its intrinsic value, in an area that has always exhibited strong long-term capital growth and one to which they can add value so they can create some capital growth. As I said, this could be through renovations, refurbishment or redevelopment.

The funny thing about buyers’ markets is that this is a time when buyers don’t buy properties, but smart investors do. They’ll be setting themselves up for the next stage of the property cycle, when they’ll reap the rewards for their actions.

Michael Yardney is the director of Metropole Property Investment Strategists, a best-selling author and one of Australia’s leading experts in wealth creation through property. For more information about Michael visit www.metropole.com.au and www.PropertyUpdate.com.au.