A rise in the number of investment properties whose rental returns exceed the cost of the mortgage will trigger a recovery in the housing market.
Cuts to official interst rates, and years of foundering prices and rising rents means investors can, in some parts of Sydney and Melbourne at least, now buy properties that will return about as much in rent as they cost in mortgage repayments.
"There is a real possibility we will see positively geared properties emerging this year in the affordable markets of the southern capitals," said SQM Research managing director Louis Christopher.
"Vacancy rates are still very tight at the affordable end of the market so rents will continue to rise in the sector in 2009, further boosting returns for investors."
The southern capitals represented the best buys.
Perth house prices were still losing ground and southeast Queensland was over-supplied, Mr Christopher said.
In Sydney's inner-city Darlinghurst, a one-bedroom unit was yesterday advertised for sale for $275,000 with an estimated weekly rental return of $360.
Before allowing for expenses such as strata fees -- or advantages such as depreciation tax breaks -- the weekly costs of holding the property, based on a loan hypothetically covering 100 per cent of the purchase price, would be $372 a week.
Mr Christopher said rents were expected to continue to rise for affordable properties over the coming year, but a looming surge in unemployment -- and a possible recession -- could have a major impact on the health of the rental market.
Potential investors would also need substantial equity before they jumped into the market.
Mr Christopher said borrowing 100 per cent of the purchase price of a property -- particularly small apartments -- was difficult even at the peak of the credit boom and now it was almost impossible.
He said buyers looking to avoid taking out costly mortgage insurance were now forced by many lenders to stump up deposits as high as 40 per cent of a property's purchase price.
Mr Christopher said tight rental supply and the high entry point of many traditional blue-chip properties meant cheaper homes currently represented the best investment opportunities.
According to property research group RP Data, the median price of the the top 10 per cent of properties, based on price, slumped in Sydney, Melbourne and Brisbane last year as financial markets worsened.
Sydney was hardest hit, with the top 10 per cent of properties slumping in value by 19.5 per cent, from an average $1.6 million to $1.29million. In Melbourne, the top 10 per cent of properties slumped 15 per cent over the year, while the cheapest 10 per cent of properties rose in value by 4 per cent.
First-home buyers, disenfranchised by high rents, were underpinning demand for cheaper properties.
In Sydney over the weekend, 66 per cent of properties auctioned were sold, up from 53 per cent on the same weekend last year. Nick Tassis, of real estate agency Ray White Rockdale, in Sydney's south, said there had been a surge in buyer interest in recent weeks.
Mr Christopher said small inner-city apartments or cheaper outer suburbs -- such as Bankstown in Sydney's west -- would be the areas most likely to experience the emergence of positively geared properties as rents continued to grow.