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Finding Stability in a Falling Market

Falling property prices in the nation’s two largest cities have led to the first annual drop in national property prices in six years. The Domain Group’s June Quarter House Report revealed the national median house price fell by 1.0% over the June quarter and year, with Sydney recording its largest annual drop in house prices at 4.5% over the year to June.

House prices in Sydney and Melbourne account for around two-thirds of the Australia’s housing market value, and diminishing prices in these two cities drove the slump in the national rate. Dr Nicola Powell, Domain data scientist and property analyst, said, “House and unit prices in Sydney are back to values seen at the end of 2016.”

Additionally, experts believe this is just the beginning. Many expect reductions in the two major cities’ median prices to continue, with economists from leading financial institutions predicting the weakness to continue until December 2019.

While this movement is considered a correction, not a crash, for investors who purchased at the peak (June 2015 for houses, and December 2001 for units, according to data in the report) it’s a concerning scenario. Many be left questioning the ongoing affordability of their investment, investigating factors such as holding costs and rental income to ensure the property remains profitable.

 

Finding stability in property investment can be difficult, however residential real estate isn’t the only option. Investors interested in long-term tenancy may want to consider the benefits of investing in serviced apartments.

Serviced apartments offer investors an opportunity to buy property with built-in safeguards against some of the most common issues in real estate investment, such as finding and keeping good quality tenants, and dealing with loss of income from vacancies.

In addition, as an owner of a serviced apartment, you enter into a long-term lease with a third-party company, which then sub-lets the apartment for short stays (like a hotel room). The long-term nature of the lease offers much more security than a standard residential lease (which is usually only negotiated for twelve months), with periodic built-in rental increases. Additionally, because your agreement is with the serviced apartment company (and not the guest staying in the room) you will receive your rent, regardless of whether the room is actually being occupied.

With increasing development in many areas resulting in an over-supply of residential apartments, choosing a serviced apartment could prove a sensible alternative. Serviced apartments are located in areas of economic growth and business development, and cater to the needs of business travellers.