Covid Property Purchases - Take Advantage Of The Current Market And Play The Long Game
1. Stay within your means and buy when the timing suits you
The news headlines are screaming panic in the property market, drops of -30% to come in the next 12 months and the “September Cliff” when the bank and government stimulus weens off. The reality is that anyone under mortgage pressure due to loss of income or health issues will likely have ample time to take care of their affairs thanks in part to greatly reduced stock levels which is underpinning prices. Buyer depth in capital cities for good quality homes & locations remains strong and days on market is at a consistent level, a rise in this metric is typically a key indicator of a softening market.
If the headlines do ring true, its likely to be over a prolonged period and my prediction is that things will bounce back quickly as they did post the heavy drops of 2018/19 - which saw peak-trough declines of around -15% in Sydney / Melbourne only to then go rampaging forward once again.
Key takeaway - Don’t look at what happened yesterday, today or even short term views, buying property is a long game, focus on 10+ years ownership, the sweet spot for capital growth is 9.5years.
2. Smart buyers will take advantage of the current market conditions
Those with secure incomes looking to trade up, FHB's or Investors adding to their investment portfolio may be wise to focus on the buying opportunities right now which may not be on offer in 12-18m time.
Owner Occupiers - Trade into a bigger home, better location, closer to the coast or into a sought after school zone previously out of reach.
Investors - Focus on positively geared quality assets in area’s with 100+ annual sale turnover for liquify if required as a safety net. Now might be a good time to diversify to regional markets which is currently outperforming capital cities price growth and offering superior rental yields. If you buy capital cities, aim at suburbs with +7% historical long term annual price growth and a property you can add value to over time, might be a renovation, development play or the addition of multiple income streams.
First Home Buyers (FHB) - Focus on growing your deposit size reducing the need for Mortgage Lenders Insurance. Aim at a property you can buy to add some value, occupy yourself to take advantage of government grants then with the ability to switch into an investment property to build your long term wealth. Re-mortgage the property when the market has improved for instant cash to roll into the next one.
3. Houses vs Units
In most parts of Australia, house price growth outperforms that of apartments, therefore, your thinking right now should be on trying to locate the best "value for money" houses with growth potential. To put this into perspective, national median house values over the past 25 years until 2018 had risen 412% vs Units 316%.
The risk of off the plan apartment purchases will not go away in the next few years, developers are using incentives to lure new buyers such as cash back or furniture packages, this is a ploy to keep their sale price values high on paper. What we have seen with recent settlements is that valuers / banks are taking a different view on the finished product value and this is resulting in valuations that are short for buyers meaning they have to dig into their cash reserves (if they have any) to cover the short fall or risk defaulting on the purchase. Banks are going to play harder in the space in the next few years too.
Most home or investment buyers lack a clear strategy on how their financial future through property may unfold. What do you want your future to look like, what income will you need in retirement and where is that money coming from ?
Those just starting on the property ladder will of course have a different view on how their future looks to a couple with children in their 40’s, either way, it’s never too late to plan, as failing to plan is the worst mistake you can make.
Fundamentals that are key to house price growth:
- Population shifts
- Infrastructure additions (new roads, schools, hospitals, sports stadiums, airports etc)
- Walking distance or short drive to a village / shopping precinct
- Popular beaches or parks
- In-demand school zones, public transport or major road links
- Affected by privacy or noise issues, drainage problems, sloping or awkward shaped blocks of land
- Close to low income housing or high density living
All of these could detract from the long term growth potential or desirability of a future tenant.
Tip - Aim at the suburb’s median style home for safest growth potential and the highest demand from tenants and future buyers. They turn over the most so selling should be easier if/when you may need. You can easily work this out by checking the current property listings and recent sales to gauge what is most popular + delving into the suburb’s demographics such as median age, is it made up mostly of singles, families with children or retiree’s and what is the average income? This data is free and readily available online.
Hello Haus will help navigate the current Covid-19 market conditions and coach you into the right property for your needs - ensuring you pay the least amount possible. Ask us how today, contact Scott Aggett on 0400119830.