The future ahead in Property & how can I ensure I am protected? (The question of the moment)
The world is no longer as we once knew it, property markets across Australia are beginning to feel the ever-increasing weight of Covid-19.
From the top, companies are ceasing their operations due to not having enough customers to purchase their products or services, landlords are put in compromising situations and not being able to lower rents due to current financial structures in place with their lenders and property investors who are geared to their maximum may all be feeling the heat at the moment.
It’s no lie that things are getting tough & the divide between the rich & the poor will only grow more evident as time proceeds.
The truth is until we know how long this pandemic will last, we really don’t know the full effect of Covid-19.
We do know that The Australian Market has always remained victorious, recovering very well from past global economic situations, over some 120 years, property prices in Australia have risen at an average compound rate of 10.4% and property prices have doubled every 7 years or so despite droughts, wars, changes of government, interstate and overseas migration. It’s important to take into account that when we take a short-term view of property price movements, we can become anxious by contradictory statistics. However, if you understand that property prices move in 7-10-year cycles, the picture becomes a lot clearer.
Is it a good time to buy?
It’s no doubt that property transactions across Australia have dropped. On one hand we have Vendors calling their Sales Agents requesting to take their properties off the market, while distressed sellers who are facing financial hardship from job loss are forced to sell their family homes or investment properties at the fear of not being able to keep their family afloat.
Has this all happened to make us rethink the way we are living, saving, and investing……?
That ever so precious financial security or pot of gold at the bottom of the rainbow that we all strive for. Have we done everything in our power to ensure we are in a are safe position?
What if this ever happened again, are we protected?
The question we should all really be asking is – WHERE is it a good time to buy?
Owning a property is one thing but paying it off is another….
Australia is made up of many different property markets, understanding how these markets work, may be beneficial for people who want to secure their future and build a property portfolio.
In a declining market the premium luxury locations are usually the first to see the impact, that large 5 bedroom bayside home that was originally selling for 4.5milion could all very well come down to a price of 3.8milion if it’s on the market for too long or have a distressed buyer needing to cash out.
Then at the other end of the spectrum we have the savvy investors looking for affordable/discounted positively geared properties, chasing high rental yields so they are not putting too much stress on their cash flow position.
When purchasing property, it is important to focus on what your strategy is, the 6 most common strategies are:
- Capital Growth
- Positive Cash Flow Investments
- Developer Discounts/Rebates
- Renovate
- Subdivide
- Development – Large scale
It’s important to pick a strategy according to your financial situation & stick to it as many people get caught up in the emotional side of things & they blow their budget.
How resilient is the Australian economy?
It’s always a good time to buy if you know where and what to buy with the correct financial structure in place. Being proactive in an uncertain market can have its advantages.
Property prices may fluctuate around 5% - 10% over this period, but this may not be in all cases.
It’s a great time to take advantage of the established real estate market, however inventory is so low it may not actually change the value of the property at all.
The Inventory available in brand new construction is also low due to the changes that took place in 2017 with Foreign Investment restrictions & Banks tightening their belts.
Many Developers were put in compromising situations, most deciding to hold off or delay the start of construction; big and small, as a result, today we have a lack of new properties available to purchase which may have actually helped keep our property market from falling even further today as it’s all about supply Vs demand.
The brand-new construction market is what will also keep prices from lowering as Developers know that “this is just a phase & it too shall pass”, They will not lower their prices and risk losing profits which would impact their current investors & purchasers.
For a Developer to change prices he would expose his current purchasers and they would face valuation issues & compromise all their future settlements for the project.
If a Developer does want to sell due to financial need or if they just want to move on from the project, they will most likely offer a generous rebate, furniture package or holiday incentive to sweeten the deal.
In brand new construction we need to take into account, The Developer has most likely paid a premium for the land in today’s pricing, hired a “state of the art team” consisting of architects, designers, builders, contractors and so on, lowering prices may not even be a possibility.
Trouble in today’s world.
We are living in a world where relying on capital growth may be a questionable approach when investing, over the last 5 years we know that growth in all the capital cities have certainly been slow, this could have been due to the rush of the rising property prices after the Global Financial Crisis when prices climbed to their highest, we may still be waiting for it all to catch up.
Over the last 10 years we have seen the most growth in regional areas close to the capital cities.
Investors who took this “Capital Growth” approach and purchased Apartments, Townhouses and Homes at premium prices across city locations happily organised finance on “interest only” loans and never questioned to pay off the principle in anticipation that capital growth would kick in & their loan to value ratio would increase and they would have equity in their properties which would allow for a rental increase and options to refinance or borrow against.
The issue is that over the past 5 years the capital growth never kicked in, their “interest only” period expired and loans switched to “Principle & Interest” and they are now up for an additional $1000 - $1500 per month.
This can be a scary place for an investor, especially if you have 2 or 3 properties in the same position or a mortgage……
Today, one of the safest ways to ensure you don’t get stuck in a scenario that you are cash poor is to invest in high yielding properties.
Properties should be paid off as soon as possible to ensure you start to see the benefits of what investing in a property actually means, the goal is to purchase property that will provide you an income - not cost you money.
Slow & steady wins the race.
In today’s environment it is important that we now take action and plan ahead.
It’s important to start planting seeds now so our future selves are in a sound position to take care of the ones we love tomorrow.
The easiest way we can start to invest is to locate areas which have strong forecasts for future growth, career opportunities that can sustain strong population increase with efficient transport systems, elite schools and universities with a proactive government who are invested in increasing all of the above and evolving with the changing times.
Given the economic challenges caused by coronavirus, if you are in the position to invest, you should. Right now, it’s more important than ever that we protect our future and we continue to support our building and development industry and the thousands of people it employs.
It’s a buyers’ market so now is the time to discuss a purchase on your own terms rather than sticking to the vendor demands.
Right now, you won’t have an influx of other buyers competing with you & you will most likely have a little extra time on your hands that you can sit down & speak to an investment specialist about what your goals are, and set an achievable plan to move forward with and continue to assess each year.
