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The Key Opportunities and Challenges Facing Property Investors Right Now

National dwelling values have been on a downward slide ever since the Reserve Bank of Australia started lifting the cash rate in May.

But while CoreLogic’s national Home Value Index continued to soften in November, falling by 1% month-on-month, the pace of decline has consistently slowed since the index dropped by 1.6% in August.

CoreLogic’s research director, Tim Lawless, said the easing in the rate of decline was mostly emanating from the Sydney and Melbourne markets, but was also evident across many of the smaller capitals and most regional markets.

“Three months ago, Sydney housing values were falling at the monthly rate of -2.3%. That has now reduced by a full percentage point to a decline of -1.3% in November. In July, Melbourne home values were down -1.5% over the month, with the monthly decline almost halving last month to -0.8%,” he said.

While no one knows for sure where prices will find their floor, many would-be property investors are sensing a window of opportunity.

So is now really a good time to jump back into the market?

To answer that question, let’s examine the key opportunities and challenges facing property investors right now.

The chance to snap up a bargain

It goes without saying that the recent boom was a challenging time to be a buyer, thanks to many Australian property markets experiencing record-high prices, low inventory and fierce competition.

But as 2022 progressed, the market started to cool as multiple interest rate rises reduced buyer demand. With fewer buyers around, properties took longer to sell and vendors began to lower their price expectations – wiping more than $53,000 off the median national home value since April.

Similarly, these less-than-ideal selling conditions have also put more pressure on vendors to compromise during price negotiations, leading to a jump in discounting.

As the CoreLogic graph above shows, the median vendor discount hit a recent low of -2.9% in the three months to November last year. But in the three months to October 2022, this had increased to -4.3%.

So, if your financial circumstances allow, now could actually be a great time to buy an investment property as you have the chance to pick up a quality asset at a discounted price.

The tight rental market

During the boom that lasted from late 2020 to early 2022, many investors sold their properties to realise price gains.

As a result, there’s an extreme shortage of available rental properties, with the number of vacant rental listings in November 46.6% lower than the same time last year, according to Domain.

But while supply is down, demand is up, particularly with the return of overseas students and migrants.

As a result, vacancy rates in many Australian property markets are at almost unheard-of lows – with only eight out of every 1000 available rental properties nationwide untenanted over November, according to Domain.

With very few vacant rental properties, rents are skyrocketing – with SQM research reporting the national median asking rent increased by a staggering annual rate of 16.9% over the 12 months to November.

This means that not only is it currently cheaper to buy an investment property than it was 12 months ago, it’s also easier to find a good tenant and get a good rent.

The key challenges

Savvy investors might be eyeing the favourable market conditions outlined above, but that’s not to say there aren’t challenges.

The biggest of these are the interest rate rises that will have shrunk your borrowing capacity. That’s because lenders assess your ability to repay a loan at the product’s interest rate plus a buffer of at least 3 percentage points.

So if, for example, you apply for a loan with an interest rate of 5%, you’ll actually be assessed at a minimum of 8%.

Rising interest rates make it more expensive to borrow money, which slows down the economy. While this should help bring down inflation (which is why the RBA is increasing the cash rate), it also increases the general feeling of uncertainty about the future.

That said, Australia’s economy proved its resilience during the pandemic and we’re better placed than many other major economies.

The Organisation for Economic Co-operation & Development predicts Australia’s economy will grow by 1.9% next year, better than America (0.5%), the EU (0.5%), Canada (1.0%), Japan (1.8%) or Korea (1.8%).

Time in the market vs timing the market

You would be forgiven for assuming it might be better to wait for prices to fall more before buying an investment property. After all, surely the best way to make money in real estate is to buy low and sell high, right?

The problem is, it’s almost impossible to know when you’re at the bottom of the market cycle. What’s more, if you’re constantly waiting for the bottom, you’re more likely to miss out on quality investment properties.

At the same time, history tells us investing is less about timing the market and more about time in the market, with Australian property prices growing by a stunning 382% over the 30 years to July 2022, according to CoreLogic.

That’s despite six downswings (including the current one), multiple economic shocks, interest rate movements and policy changes.

Looking to break into the market? We can help. To discuss your options, call Stephen on 0403 972 132, email or fill in this online form.

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