A slowdown in capital growth over the coming years means investors should focus more on cash flow, according to RP Data senior research analyst Cameron Kusher.
While housing prices have generally doubled every seven to ten years in the last two decades, Mr Kusher believes those days are behind us.
“If we look at credit growth, it’s very benign. The housing finance commitments are improving from a very low base,” Mr Kusher told Smart Property Investment.
“The conditions aren’t conducive to seeing property prices doubling every seven to ten years, and it does have an impact on investors and on homeowners.”
With growth expected to slow down, Mr Kusher advised investors to rethink their investment strategies.
“For investors, particularly those who are negatively geared, you’re not going to see the same level of capital growth, so I think investors need to have more of a focus on positively geared property,” he said.
“And for homeowners, if the value of their home hasn’t been jumping like it has in the past, it’s harder for them to upgrade because they don’t build the same level of equity as they’ve had in the past.”
Compared to a decade ago, where investors could expect property values to double over 10 years by purchasing almost anywhere in the capital cities, Mr Kusher said investors now have to be more astute.
Despite this, investors will find that some areas will continue to outperform the broader benchmark. The difference now is that investors need to look harder.
“You need to look at things like new infrastructure going into these areas, where the government is spending money on rejuvenating, where the developers are coming in and spending money to bring new housing stock on,” Mr Kusher explained.
“You really need to be much more across the local market conditions and [have a] much better idea of what’s happening to really grasp those opportunities over the coming years.”
Mr Kusher points to outer suburbs of capital cities such as Toowoomba in Queensland, Newcastle and Wollongong in New South Wales, and Geelong and Ballarat in Victoria as areas that could offer opportunities provided infrastructure in these areas is improved.