A very narrow gap between gross rental yields and mortgage interest rates is a buy signal for investors.
Will the quality of NBN connections affect property prices?
With all the coverage of the NBN rollout in the media lately, we’ve been getting questions about whether the speed of internet connections has any kind of effect on house prices.
In short, we don’t think so, except in particular circumstances that I will explain later on...
The concerns regarding house prices stem from the fact that the NBN is being rolled out in two different ways – either through fibre to the premises, which provides a connection directly to the home, or fibre to the node, which means the cable is run to a central source that services the whole neighbourhood. We don’t need a tech genius to tell us that a direct line to the property is going to be faster and more reliable.
We also can’t ignore the fact that the internet has become the “fourth amenity” (along with water, electricity and gas) in the average household. We’re using internet connections to stream our entertainment, to work from home, and even “talk” to our air con units and washing machines. So access to reliable bandwidth at decent speeds will increasingly become a must-have for people looking to buy or rent homes.
Our investors understand that consideration of tenants’ needs is crucial to ensure yield from rental. If tenants can’t be guaranteed decent access to broadband through the NBN, investors will need to give some thought to how they can provide this increasingly crucial amenity.
Fortunately, one thing we do know about technology is that it is constantly evolving – whenever there is an issue, some technical whizz inevitably comes up with a solution. For example, we are already seeing reports that many Australians are choosing to access the internet via a mobile connection rather than cable, even at home. The upcoming release of 5G in Australia might provide a viable alternative to the NBN.
So we’re watching this space. While the NBN rollout is a big issue for people right now, for the long-term investor it might not be such a problem.
Right now, the circumstances in which it could become an issue occur when there are similar properties for sale in the same area that have access to different types of NBN technology.
All else being equal, the property that has the inferior NBN connection might, on occasion, miss out on a buyer for whom super-fast internet is important. They might be a work-at-home graphic designer or an investor who wants to be able to attract those sorts of tenants.
At auction, that potential buyer could be crucial. The “lost” buyer might have been the highest bidder, or the under-bidder, adding momentum to the bidding process. Either way, if they don’t show up to the auction due to a lack of high-quality internet at the property, the ultimate sale price could end up being tens of thousands of dollars lower.