Getting back on track in 2019
With most of the capital city markets slowing through the latter of 2018, the tables have finally turned in 2019 to a buyer's market and now is the ripe time for investors to enter the market and get their portfolio back on track.
With most of the capital city markets slowing through the latter of 2018, the tables have finally turned in 2019 to a buyer’s market and now is the ripe time for investors to enter the market.
It is certainly a confusing time for investors. The media reports are providing conflicting messages about the possibility of a housing crash alongside speculation of interest rate rises. Many investors are weighing up whether they wait for prices to drop further or buy now which may mean they potentially miss out on a better deal.
So, how does the current market impact investors, and how can we get our portfolios back on track in 2019?
Well, although the markets of Sydney and Melbourne have cooled, there are some markets that are still seeing gains and smart investors are able to create equity without relying on normal market growth. It is virtually impossible to predict precise housing price trends in the future. No one knows where the bottom (or top) of the market cycle is until it is an afterthought. We can look at historical data to get insights, but no one is able to predict the future.
No matter the state of the markets, it is more important that you pay the right price for that particular property. Many investors are losing out at the moment because they are putting too much focus on the stage in the market and are hoping for a better deal. Of course, further housing price drops are not inconceivable but waiting for a better deal is fraught with risks.
Buyers shouldn’t lose focus and allow the short term fluctuations in the market to affect their long term goal of property ownership and wealth creation. Buying the right property and holding it for the long term has always proven to be a resilient strategy. Getting too focused on what might happen and trying to predict the future is only going to set you back and land you with a case of analysis paralysis.
Safeguard from the market conditions- creating equity in a property.
In a sluggish market like many at the moment, it is possible to make excellent gains in the short term by buying the right property where equity can be manufactured. This means not having to rely on the capital growth of the market, but rather purchasing a property where value can be added through renovation, subdivision, or development.
It is important to buy in the right location which has demand for these types of properties, pay the right price for the property, and not over capitalise. A lot of research needs to be done on comparables so you know what is possible and what you are trying to achieve. By employing this strategy in 2019, you will be able to safeguard against some of the market fluctuation risk in the short term.
The lending environment
In the current lending environment, and following the royal commission, loans are increasingly difficult to get approved as the banks are becoming more prudent with their lending policies.
Don’t only stick to the ‘main’ banks either, second tier lenders who will consider your individual circumstances are providing some excellent deals and may be able to fulfil your requirements. Different lenders will lend on different strategies as well. Some banks lend for renovation, otherd specialise in development finance. We always recommend speaking to a good mortgage broker to weigh up all your options.
Don’t let the speculation of interest rate rises scare you. At the moment, we are experiencing all time low interest rates so it is only a matter of time there will be a rise. When reviewing an investment opportunity, we advise our clients to factor this into their budget and finance. Understanding how your investments will perform if there is a rise, and preparing for any impact will mean that any talks of interest rates rising won’t scare you.
Government Policy and Federal Election
The uncertainty with the upcoming federal election and potential impact to investors with the proposed changes to negative gearing and capital gains tax policies has provided an excuse for some investors to sit and wait to see what happens.
One important thing to note, if Labor gets into parliament and all these proposals get approved, your entire investment portfolio is not going to collapse. It will just mean that you need to take
these changes into account and accommodate this when purchasing future investment properties.
Best advice for investing in 2019:
- Understand your borrowing power. What you were approved to borrow 6 months ago may not be what you can borrow today.
- Don’t underestimate the cost of purchasing. Remember to put aside enough money to cover stamp duty, legal costs, insurance, Building & Pest Inspection, and small incidentals (such as maintenance and repairs).
- Always get professional advice. A good mortgage broker will be able to advise you on the best finance structure and lender for your individual circumstances. Always have the contract reviewed by a solicitor.