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Should you buy that investment property this year?

investment property 1

Property investors are set to snap up homes and apartments across Australia in 2022, as interest rates remain low and rental vacancy rates continue to tighten.

But experts are forecasting it won’t all be smooth sailing, as future landlords face the uncertainty of both federal and state elections, with housing policies that are yet to be defined. They also face possible interest rate hikes, which are looming on the back of inflationary pressures.

While interest rates may not rise immediately, tighter lending rules introduced in 2021 have already made it tougher for investors to get a mortgage, Loan Market Mortgage Broker Daniel Koutsamanis said. But that hadn’t yet had a major impact on the number of people looking to invest.

Changes to loan rules, including the calculation of debt to income ratios, (the amount someone can borrow depending on their earnings), and of interest rate buffers that determine if a borrower can afford a mortgage if interest rates rise by 3 per cent, had seen the amount that could be borrowed fall by between 5 and 10 per cent.

“Budgets are coming down a little bit, but there hasn’t been a drastic change,” Mr Koutsamanis said. “There’s still a fairly decent amount of confidence, with clients wanting to invest. The sentiment is still pretty decent, pretty strong.”

That confidence follows a stellar year for investors, with the number of new loan commitments jumping by 89.6 per cent across the year to October 2021, Australian Bureau of Statistics figures showed.

There was $9.73 billion of new loan commitments for investment properties in October alone, the data showed, despite the hit to rental markets in both Sydney and Melbourne over the year.

Rents in Melbourne dropped significantly over 2021, making it one of the cheapest capital cities to find a rental property. Apartment rents dropped by 7.5 per cent across the year to September and house rents fell by 2.3 per cent, Domain figures show.

Sydney apartment rents fell by 2 per cent over the same period, while house rents rose as people looked for bigger properties during lockdown.

investment property

Tenants have flocked to Queensland to escape lockdowns. Photo: Domain 

Both markets rely on overseas migration to help fill rentals, including international students who were kept out of the market because of the COVID-19 pandemic.

Unlike Sydney and Melbourne, Queensland saw an influx of new tenants and new buyers, moving away from lockdowns in both cities.

Mr Koutsamanis said some investors were still looking at buying in Queensland, where the vacancy rate has dropped below 1 per cent and is just 0.5 per cent on the Sunshine Coast, according to SQM Research.

A rise in tenant numbers is now predicted in Sydney and Melbourne as international borders reopen to overseas students, workers and tourists, providing opportunities for investors across the country, Sydney-based Aus Property managing director Lloyd Edge said.

“With the international borders reopening, there is opportunity for more growth, with students returning at the moment. I think the properties in the city might start to come back,” Mr Edge said.

Demand for Airbnbs could also return, offering investors a way back into the short-stay rental market, Mr Edge added.

While rents may improve slightly with borders reopening, they would stay lower until migration returns to normal levels and investors would need to think about the long term, keeping properties for at least 10 years, said Melbourne-based buyers agent Wendy Chamberlain.

“Over time, real estate is a forgiving investment, so investors do need to look to the long term. They need to buy assets that can weather the storm rather than be hard hit, like student accommodation.”

Ms Chamberlain said looking further out of the city, and in regional areas, where investors could buy a bigger property with their money would help attract tenants looking for more space.

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Local Issues

Why rising interest rates are good news for property investors

rising interest rates are good news for property investors

Cashed-up property investors are set to be the biggest winners from the first in what’s likely to be a series of hikes in the Reserve Bank of Australia’s official cash rate.

The rise from the historic low of 0.1 per cent to 0.35 per cent, together with the forecast of more to come, sparked immediate fear and loathing from those whose finances were already strained by record-high home prices.

“I think we will now see a reduction in buyer demand in the market as a result of some of the scaremongering that’s gone on about this rise,” says Nicola McDougall, the chair of the Property Investment Professionals of Australia.

“As a result, the more experienced investors and more savvy home buyers will welcome less competition in the market.

“At the same time, they tend to have the discretionary income and cash flows because they’re high-income earners, so they’re the least likely to be affected by these minor increases in the interest rate.

“They will probably have a more sophisticated understanding of monetary policy and financial markets too, and will welcome a return to more sustainable conditions.”

While the RBA tends to cut rates very quickly when the economy slumps, such as after the GFC and during the COVID pandemic, it tends to lift rates extremely slowly, she points out.

The last time it increased the cash rate because of inflationary concerns was during the two years from March 2006 to March 2008, when the rate rose only two percentage points over the whole period.

Australian Bureau of Statistics figures show this recent 0.25 per cent rate rise will increase interest rate charges on an average mortgage of $600,000 by an additional $1500 a year.

Borrowers have enjoyed rate cuts of 1.9 per cent over the last six years, says Godfrey Dinh, chief executive of fintech Futurerent, so they shouldn’t be concerned about such a minor lift, particularly as they’ve already been assessed at much higher interest rates.

“Prestige property investors are likely to have most of their portfolios in Sydney and Melbourne anyway, so have benefitted from phenomenal levels of capital growth,” says Dinh, whose company gives property investors up to $100,000 of rent in advance.

“Against those, this interest rate is not significant.

“Most have bought in the cycle and have had a dream run with price growth and rental growth, and they’d typically have a lot of contingencies built in.

“They’ll have good incomes and are happy to run negatively geared property and have no problem covering a cash flow shortfall.”

But it will squeeze everyone’s hip pocket, believes Loan Market director and mortgage broker Alex Lambros.

And if investors are buying more expensive homes, it will hit them harder.

“A 0.25 per cent interest rate rise on a $10 million property will be a significant jump,” he says.

“The wealthier might have different buffers in place – more cash or more assets they can sell to raise cash – but they’ll feel it just the same.

 

 

Article source: www.domain.com.au

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Opinion

How To Find The Top New Property Listings

Ways To Find The Top New Property Listings

It can be difficult to find the top new property listings when there are so many offers on the market. However, by taking a few simple steps, you can make the process much easier. First, you need to define your market and consider different forms of marketing. Then, connect with other agents in your area and search niche blogs and other local publications for real estate solutions. Finally, ask for referrals from your current connections and use all of the information you’ve gathered to find the best new property listings for your business.

Define your market

When you’re looking for new property listings, it’s important to have a clear idea of the type of property you’re interested in. You need to know your target market inside and out so that you can focus your search on the right places. Consider what type of properties are in demand in your area and what price range you’re looking for. 

Once you have a good understanding of your market, you can start to narrow down your search. As seen with off-market properties, some of the best listings are not always advertised publicly. They may be sold through word-of-mouth or by networking with other agents in your area.

Consider different forms of marketing

There are many different ways to market your business, and each one has its advantages and disadvantages. Traditional marketing methods such as print ads, radio commercials,

and TV commercials can be expensive and time-consuming. However, they can reach a wide audience and generate leads quickly. Social media marketing is another option that is often used by real estate agents. It’s a great way to connect with potential clients and build relationships. However, it can be difficult to stand out from the crowd on social media.

Connect with other agents in your area

One of the best ways to find new property listings is to connect with other agents in your area. They may be willing to share their listing inventory with you or refer you to their clients. You can also search for real estate agents on social media and connect with them that way. By building relationships with other agents, you’ll be able to get access to the best listings before they’re advertised publicly.

Search niche blogs and other local publications for real estate solutions

Another great way to find new property listings is to search niche blogs and other local publications for real estate solutions. These publications often have classified ads that list properties for sale. You can also find contact information for real estate agents in these publications. By searching through these resources, you’ll be able to find listings that are not advertised anywhere else.

Ask for referrals

If you’re having trouble finding new property listings, ask for referrals from your current clients. They may know someone who is looking to sell their property or they may have seen a listing that isn’t advertised yet. Referrals can be a great way to get access to new listings before they hit the market.

Tips to Finding The Top New Property Listings

Use your current connections

Finally, don’t forget to use your current connections when you’re searching for new property listings. Your family, friends, and colleagues may know someone who is looking to sell their property. They may also be able to give you referrals to other agents in your area. By using all of your connections, you’ll be able to find the best new listings for your business.

Finding the top new property listings can be a challenge. Use all of the resources at your disposal to get ahead of the competition and grow your business. Thanks for reading!

 

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Local Issues

House prices to plummet as huge interest rate increase expected

huge interest rate increase expected

A major bank has warned house prices will plummet this year as faster rate hikes have a chilling impact on the property market, amid fears that interest rates could rise by a whopping 0.4 per cent next month.

Earlier this year, ANZ had predicted that house prices would rise by 8 per cent on average in capital cites across Australia, but it has now slashed the forecast to house values dropping by 3 per cent in 2022 on the back of unexpected rate rises for the rest of the year.

The major bank has also forecast that house prices will plunge by a further 8 per cent next year, an even bigger drop than its earlier forecast for 2023.

The country’s third biggest home lender said the Reserve Bank of Australia’s move to raise rates far earlier than expected would have a sobering effect on the property market as buyers are limited by the amount they can borrow.

ANZ senior economists Felicity Emmett and Adelaide Timbrell have said interest rates will hit 2.35 per cent by the middle of 2023, although other experts have tipped them to reach as high as 3.25 per cent by that year.

“Housing prices look set to turn lower in coming months,” the economists wrote.

“While fixed rates have already risen sharply, the steep increases in the cash rate will flow through to variable mortgage rates, lifting minimum repayments significantly and reducing borrowing power. Macroprudential tightening, solid supply and constrained affordability will also be headwinds for house prices.”

ANZ’s economists added that official interest rates of 2.35 per cent would see a variable mortgage rate soar to 4.75 per cent, which would “significantly” reduce how much people could borrow.

House prices have already began to drop in some capitals. In Sydney, prices decreased for the first time since early in the pandemic by 0.1 per cent in April and in Hobart the drop was more marked at 0.44 per cent, the first time prices have fallen since early 2018.

ANZ predicted Sydney house prices would drop the most dramatically in the coming months with a fall of 8 per cent this year as a greater supply of homes hit the market and lenders further tighten their lending standards.

Interest rate rises would also trigger a drop of 8 per cent in Sydney house prices in 2023, their economists said.

For Melbourne, prices were expected to decrease by 5 per cent this year and 6 per cent in 2023, although Brisbane, Adelaide and Perth would buck the trend and still see house prices go up this year.

But 2023 was a different story with house prices predicted to drop by 9 per cent in Brisbane, 13 per cent in Adelaide and 7 per cent in Perth, according to ANZ economists.

Despite the RBA expressing concerns about the impact of higher interest rates on Australians who are highly indebted when it comes to property, according to the minutes published from its May 3 meeting, it still caught experts off guard when it hiked rates by 0.25 per cent.

However, homeowners narrowly avoided an even bigger jump and there’s a risk this super-sized move could be made by the RBA in June, experts have warned.

The RBA minutes showed it was weighing up a rate rise of either 0.15 per cent, 0.25 per cent or 0.4 per cent.

“Members agreed that raising the cash rate by 15 basis points was not the preferred option given that policy was very stimulatory and that it was highly probable that further rate rises would be required,” the minutes said.

“A 15-basis-point increase would also be inconsistent with the historical practice of changing the cash rate in increments of at least 25 basis points.

“An argument for an increase of 40 basis points could be made given the upside risks to inflation and the current very low level of interest rates.

“However, members agreed that the preferred option was 25 basis points. A move of this size would help signal that the board was now returning to normal operating procedures after the extraordinary period of the pandemic.”

Economists are predicting that a 0.4 per cent rate rise could seriously be in play for June.

Commonwealth Bank’s Belinda Allen argued it can’t be “ruled out” and will hinge on data from the Wage Price Index.

Westpac’s chief economist Bill Evans said a 0.4 per cent increase in June could be seen as “best policy” considering labour shortages, rising labour costs and inflation challenges.

He added there was no “real argument” against the 0.4 per cent rise next month, “although the RBA said that because it meets monthly it would have the opportunity to review the setting of interest rates again within a relatively short period of time”.

The RBA’s reference to other central banks around the world moving to raise interest rates could be another telling sign that the bigger rate hike is on the cards.

“Several central banks in advanced economies had indicated that they were seeking to return policy rates to a neutral setting quickly and may increase policy rates further thereafter,” the minutes said.

The RBA also revealed that its economists assumed interest rates will hit 1.75 per cent by the end of the year and 2.5 per cent by the end of 2023.

All of Australia’s banking juggernauts responded to this month’s historic rate rise within hours and passed on the hike.

It’s a challenge that the RBA is well aware of too.

“Housing prices in Australia could also be more sensitive to rising interest rates than assumed, which would be likely to result in lower household wealth and consumption,” the minutes read.

 

 

Article source: www.news.com.au

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