What market conditions are pointing you towards property investment?
When it comes to investing, property could well be the most expensive purchase you ever make. For most Australians, starting to build a portfolio and take control of your future is a hard task.
In the current market, however, there are some conditions that could make it somewhat easier on your pocket. What are they? Well the cash rate certainly helps, and if it stays at the current mark of 2 per cent for most of 2016 then there could be a great opportunity to start with your first property. For seasoned buyers, there may even be a way to further build your property portfolio at a reduced mortgage rate with your next private house sale.
The golden rule: making the market work for you is one of the most important parts of investing in property.
Cashing in on the cash rate
The Reserve Bank of Australia (RBA) reported on March 2 that the cash rate will remain unchanged at 2 per cent. This figure has been consistent since June of 2015, and is significantly lower than the point in March 2012 of 4.25 per cent.
The cash rate is the indicator of how much money a lender pays in order to borrow from an authorised deposit-taking institution (ADI). Therefore, a higher rate will mean that lenders pay more to access funds and thus will charge more interest on a mortgage or any other loan. When the cash rate is higher, taking out a mortgage will be more costly.
In 1990, the cash rate was at the lofty height of 17.5 per cent. A far cry from that figure, 2 per cent is the lowest it has ever been in Australia. But what could a change in the cash rate do for your loan repayments?
Property investment no longer seems like such a difficult concept to manage financially with this information.
Canstar outlines the monthly cost of a $1 million loan assuming the cash rate is set at 4.25 per cent and the length of the loan is 25 years. For a mortgage of this size, the monthly cost would be $7,258.70. A mere 1 per cent decrease in the cash rate would result in a saving of $632.61. That's every month, which shows how much more accessible a lower cash rate makes buying property. For a smaller loan of $300,000, monthly repayments would have been $2,177.61 at the higher cash rate, but the 1 per cent decrease would save borrowers $189.78, taking the loan payments below the $2,000 mark.
The Australian Bureau of Statistics (ABS) reports that the average weekly income for an Australian resident was $1,556.30 for the 12 months prior to November 2015. A household of two people on average earnings will therefore have a combined monthly income of more than $12,000. Taking into account the fact that the significantly lower cash rate means loan repayments will be lower than those listed above, and the average monthly income of a household, property investment no longer seems like such a difficult concept to manage financially.
Who benefits in the current market?
The Commonwealth Bank categorises the capital cities in Australia into ratings out of 5. A higher number points more towards a seller's market, while a lower number indicates a buyer's market. Only Brisbane, Hobart and Darwin came in as buyer's markets as of October 2015 with a rating of 2. In fact, Sydney and Melbourne ranked at 5, meaning they were extreme seller's markets.
Buying in a seller's market and selling in a buyer's market are not necessarily advised against. Because of how property earns you money when the real estate is bought, not sold, taking advantage of the greater number of listed homes in a seller's market could mean you grab yourself a bargain. The same goes for selling in a buyer's market, as there will be significantly more buyers around than properties for sale, and it could be far easier to shift your home to someone else and free up some capital for your next investment.
BIS Shrapnel and QBE found in the Australian Housing Outlook 2015-18 that investment lending for the 2014/15 year in New South Wales increased 32 per cent over the previous year to $65 billion. Victoria saw 24 per cent growth while Queensland listed 18 per cent. Investors around the country have clearly been seeing the benefits of moving along the property ladder, and that points you towards following the strong trend set out by others. By putting yourself in a position where you can take advantage of property trends as they arise, you will be able to jump at opportunities when you come across them and reap the rewards in the future.
BIS Shrapnel reports further on the increasing prices of properties in the capital city. This is great news for investors looking for an addition to their portfolio that will grow in value significantly. The projected median annual house price increase in Sydney is 22.3 per cent, while Melbourne comes in at 15.7 per cent. Brisbane marks projected annual growth of only 3.1 per cent, but the economic growth in the region will likely increase that figure in the near future.
The value of investor loans over the two years from 2013 to 2015 surged in Sydney by 89 per cent, and while the projected annual growth over the next three years is seen to be 22.3 per cent, the evidence is clear that it is not unlikely. The same period that saw a surge of investor loans value also had an increase in the median house price of 44 per cent and reached $1,034,100 by June 2015. The median value of Melbourne houses increased only 28 per cent to $734,300 in this time, and Brisbane grew 10 per cent to $511,300. While Brisbane shows a slower growth rate than both Sydney and Melbourne, it could be a more affordable entry to the market, or even a fantastic addition to a portfolio in a burgeoning area.
So, while the cash rate is low and there is some very positive growth projected on the east coast, no matter whether the market is looking like it will benefit buyers or sellers, now is a very opportune time to dive in. It's important not to forget how property actually makes you money. If you buy well then no matter what happens around your patch of real estate, your particular house will generally hold or grow its value, based on recent market trends. In order to ensure that happens, you will need the help of significant research, and an expert voice.
How do you get the right house?
Whether you are looking at purchasing a property in Melbourne, Sydney, Brisbane or somewhere else, getting sound advice from an industry professional will make a difference. That's where a buyer's agent from Cohen Handler can come in very handy. Experts in the auction room and living and breathing the real estate market in their local areas gives them the knowledge you need to invest well.
The number of auctions in Queensland up to February 28, 2016, for example, was 179, and more than half of those (59 per cent) sold during that process. Victoria and New South Wales sit upwards of the 70 per cent mark, and so having a clear strategy when going into an auction for your desired property is important. Even if you don't purchase at auction, the knowledge that a property agent can bring to the table will be invaluable and a solid step towards succeeding in your investment ventures.