While many property market and economic experts agree that average home prices in Australia in the current cycle probably peaked back in 2005, there are still pockets of property investment potential in Australia and there are always approaches that investors can apply for maximum profitability even in a market as mature as Australia’s.

First things first it is imperative to note that there is a large affordability issue affecting middle-Australia and the average would-be home owner – house prices have risen higher than three, four or even five times the median wage in the majority of Australia’s main towns and cities and there is an ongoing risk that interest rates will increase meaning that even those who can stretch themselves to the point of affording a mortgage to buy are loath to commit.

For first time home buyers in Australia this is a negative situation – but for investors this is a very positive situation!

This situation means that there is mounting demand for quality rental stock with yields increasing throughout 2007 as the demand soars, and there are no signs that demand for rental stock will diminish in the short to medium term.

Buying Property in Australia

The next positive factors in an investor’s favour in Australia are that all coastal land and real estate as well as those homes in the major cities and coastal hotspots valued above the 1 or 2 million Australian dollar mark are intensely in demand – simply, the former is never out of favour and the latter types of property are far less affected by any small economic knocks and shakes such as small increases in interest rates.

These factors mean that investors in a position to upgrade their property investment portfolios could do very well in Australia going in to 2007.

In terms of focusing on coastal real estate – quite simply coastal land and property is in finite supply the whole world over and while Australia remains a nation where the population prefers to live around beaches, ports and seaside locations, coastal properties will always represent a good long term investment decision in Australia – not just for 2007…

In terms of focusing on the upper end of the housing market – even in cities like Perth, Sydney and Melbourne where affordability died in the market months ago, demand for properties for sale above the 2 million Australian dollar mark has never been so intense with new developers in limited supply which offers up a niche market sector for an investor to examine.

For those new to the property investment market in Australia or who have less than a few million to spend on a buying or building a single home, bear the following factors in mind if you want to profit from Australian property in 2007: -

The Ripple Effect – not everyone can afford to live by the sea but many want to live as close to it as they can afford to which is why price increases for coastal properties ripple outwards on a suburb by suburb basis – look at which suburbs close to the coast have room for price expansion and buy in…the same tactic applies to city centres and central business districts, start in the centre and work back.

The Fuel Price Factor – oil prices are increasing, the cost of commuting is annually eating a greater portion of the average worker’s take home pay and this all means that more and more people demand access to decent travel infrastructure to cut their costs and commute times. Savvy investors will look at areas of cities about to get new bus routes, rail links or metro lines and they will look at run down areas with decent potential for transport and buy into these locations as all evidence suggests that prices for properties in these parts of Australia are set to increase.

These two tactics will work in 2007 and beyond.

Finally, the property market cycle in Australia right now and going forward into 2007 has reached a unique point…fewer people are in a position to buy meaning ‘for sale’ stock is remaining unsold – this allows property investors a chance to negotiate hard, buy bargains and even clear stock on brand new developments for a fraction of their actual value.

By buying property undervalued an investor has an immediate equity increase in his portfolio. While the market remains stale an investor cannot sell to realise this increase in capital gains but they can then rent out to a market hungry for stock and a market which, through its intense demand, is pushing up rental rates chargeable.

An investor therefore has a chance to buy quality stock at knock down prices, achieve an instant lift on underlying price, tap into a strongly demanding market and buy into a period of increasing rental yields right now.

At the end of this sequence in the property market cycle affordability will return to the market, demand will manifest itself on the house buyer front, property prices will rise and an investor can then reap significant capital appreciation from investments made in 2007.

Rhiannon Williamson writes about real estate investment worldwide, to read more about her Australia property investment market predictions for 2007 click here.