A recent BIS Shrapnel report predicted a 20% increase in Sydney property prices over the next 3 years with a slow but sustained recovery starting in 2010. Housing affordability in Sydney and Melbourne is at its best level in a decade and Adelaide price levels are below other capitals in Australia indicating scope for property price gains there.

In addition to hoped for capital gains interest on investment loans remains a deductible expense against rental income so negative gearing will continue to attract investors into “bricks and mortar.  It is expected that with there will be greater investment activity in property not just with individuals but also with self-managed superfunds which can now borrow for investment purposes. Prior to this the cost of property precluded it to a large extent as an investment proposition – many self-managed superfunds are less than $500,000 and purchasing an investment property would have resulted in “all eggs being in one basket”. The government recognised the need for superfunds to spread their risk and by allowing them to borrow (at conservative levels) it broadened the scope of investment to include property for small and medium size superfunds.

Depending on the borrowing entity (individual or self-managed fund) the structure of your investment loan will differ. Your best bet is to talk with a mortgage broker or mortgage manager who specialising in investment loans – they will be able to provide you with information on the correct structure for your investment loan.

Where an individual taking out an investment loan also has a home loan they should carefully structure there borrowings to maximise negative gearing and also ensure that wherever possible surplus income is being applied to the repayment of their non-deductible home loan debt as opposed to meeting any interest shortfall on their investment loan or subsidising the costs or maintenance and outgoings such as council and water rates on their investment property. To maximise wealth potential you should consider an investment loan that is interest only and allows you to capitalise interest provided of course you remain within your investment loan limit. There are only a limited number of lenders who will allow you to capitalise interest on an investment loan – their terms and conditions may vary but as noted above – check out your investment loan requirements with a mortgage broker that has extensive experience in structure investment loans and can help to ensure that from the outset your investment loan is working for you.