With more than 15% of Australian taxpayers owning at least one investment property, it’s a big question on many people’s minds – To buy or not to buy. So, what’s the answer?
Last year saw some major curveballs thrown to property investors, which may have left you wondering whether a property investment strategy is the best way forward. An especially hard-hitting adjustment that occurred was the tightening of controls on banks for investment lending by APRA, particularly for interest-only loans. Changes to negative gearing laws prompted some tempered debates, and there was also a slowing capital growth trend in some parts of our property market throughout the year.
But despite these uncertainties, if you are in a good financial position, right now could be a good time to invest in property. Here’s why.
National rents are on the rise
Deciding if an investment property is a viable investment often depends on the rental market for the property. For many investors, this is more important than how quickly the property makes capital gains. The good news is that rental rates are on the rise, according to the latest CoreLogic Rental Report. It found that over the December quarter, all capital cities except Canberra experienced a higher annual increase in rents over the past year, compared to the same period for 2016. The same was true for regional markets. If the rent covers the expenses and generates cash-flow, you should be in a good position to hold on to the property until its capital growth value meets your target for selling.
There is less competition amongst investors
In the past, foreign investors gave a lot of competition to local investors which has tended to drive up prices. Sales in new developments are now capped at 50% to foreign investors – and investors are only permitted to purchase new build properties if they are a permanent resident of Australia. This could potentially leave the market open to opportunity – particularly to those prepared to invest in established homes. What’s more, further penalties may apply to foreign buyers if they leave their investment properties vacant.
Savvy investors could come out well ahead
If home values in the market you are considering are slowing, you may have more capacity to negotiate the price with the seller and perhaps snap up some bargains. According to CoreLogic, previous downturns have seen the annual number of sales fall by around 20-25% from peak to trough, and with fewer buyers in the market, sellers may be more willing to drop their price.
Some markets are booming
Just because dwelling values may have declined a little in some markets, it doesn’t necessarily mean this will happen in all of Australia’s property markets. Some locations are still making excellent capital gains – the key is to do your research and find the right property in the right location. Take Tasmania for example – Hobart experienced double-digit value rises last year, ending at +11.5%!
Keep in mind that lenders are very specific when valuing a property. They make an assessment right down to the suburb, street and house. You should do the same. Consider the capital growth potential and the rental market.
A fall in prices won’t spell disaster if you get your finances right
Whilst analysts are expecting a general slowdown in national housing market conditions in 2018, the beauty of property investing is that you can usually weather the storm (if there even turns out to be one). Experienced investors know the property market will always fluctuate – so being in control of your finances so you can control when you sell is key. A good loan strategy is just as important as your buying strategy, so talk to someone about your finances to ensure you’re in a secure position before you make your next move.
Professionals can help
In a softening market, a savvy property investor will take a longer-term approach. It’s important to be aware that if you are taking a short-term approach to property investing, falls in home values are more likely to affect you. If you’re planning to renovate and sell or flip properties quickly, you should be careful about the costs involved. If the value of the property should fall, you could potentially make a loss.
A good mortgage broker will help you crunch the numbers and make informed decisions, then line you up with an investment loan that suits your individual needs. Property investment is still a reliable way to grow wealth – interest rates remain near historical lows and if needed, you can still access competitive interest.
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