One(1) minute summary for the time-poor
Buy when you can afford to.
Don’t try and time the market, time IN the market is more important.
Australia is made up of many property markets, not all go up and down at the same time or velocity; there are always good locations to invest you just need to know where.
Residential property has stood the test of time (as you will see below)! If you invest in A-grade investment property in the correct location(s) you will have yourself a great low-risk investment portfolio to help deliver on your retirement goals.
Now (Q3 2022) is a great time to invest – here are 6 reasons why:
- Less buyers at the moment, less competition
- Listings have increased in July to the highest in 10 years - more to choose from means more opportunities
- Migration plan of 160,000 in 22/23 just announced from Federal Government - immigration will increase demand. (UPDATED ON 4 SEP - Government raises this to 195,000)
- It is a landlord’s market at moment; vacancies are at an all time low of 0.9%; which means good yields for investors
- Visa applications have surged - highest number in a month in 10 years – indicating an influx of immigrants and also students is coming, and
- Australia's economy is strong and the unemployment rate is very low at 3.4%.
Five(5) minute read for those with more time on their hands
Australian residential property fundamentals
Proven performance over long term
This blog article would not be complete without a quick introduction to the performance of residential property in Australia. The graph below, courtesy of Michael Matusik sums it up nicely:
As you can clearly see the residential property market has proven resilient in Australia in the toughest of times.
The doomsdayers predicted it would fall off a cliff when COVID emerged – it didn’t and in fact went the opposite way.
As we also saw during the pandemic, the Government and major Banks are also very supportive of the property market and will do all they can to help it in troubled times. The industry employs well over 1 million people and it is vitally important for the Australian economy that the property market performs consistently and well.
Australia is made up of many markets
There is not 1 property market in Australia like the media sometimes makes people think.
The following graph from Corelogic shows how the main cities and regions performed during the 12 month period to July 2022.
So when the media is saying the market is crashing then this is generally always an average and likely highly skewed by Sydney and Melbourne. If you know where to look, you can always find a good place to invest!
As you can see from above, the best market (Adelaide) performed 80 times stronger than the worst market (Melbourne). Amazing statistics indeed.
So… “when’s the best time?” you ask…
Many clients, friends and investors ask this question a lot! Especially lately with the market cooling after the 20/21 boom period and so much noise about property in mainstream media.
ANSWER - when you can afford to
Why?
Well firstly I must declare the strategy I am assuming here is a “buy and hold”. This is very relevant as there are different strategies to suit different people, so we are talking here to hold the property for over 10 years.
Secondly, as shown above, residential property is a proven performer and there is also a market (i.e. particular city or region) to suit you regardless of when you buy and your budget.
Thirdly, when it comes to investing in residential property for good and low-risk returns, the famous quote below is the clincher…..
Time in the market is more important than timing the market!
Many of you will have heard this before, and it’s not only relevant to property but investing in general.
What if I try and time the bottom?
Conversely, if you try to time the market, i.e. time when the market bottoms out and then make a decision, you:
- Run the risk of missing out on opportunities,
- Risk waiting and waiting, trying to get the perfect time to buy, and then:
- Not making a decision at all, or
- Not being able to buy as too many others have now entered the market, or
- Your life changes and you now can’t buy - for financial or other reasons.
A portfolio approach to investing in property
It is also very important to understand that generally 1 property will not be enough for the average Australian investor to retire early or be financially free. You will need multiple properties, the exact number depends solely on your situation, goals and of course the quality of the properties you purchase.
Say you want to build a portfolio and you have a strategy in place, worked out with expert assistance, that you need 4 properties. Most people won’t be able to buy 4 properties in 6 months – this takes time, so just like planting a tree, the sooner you start the sooner you will reach that goal.
Life also throws curve balls so do this when you can, before your opportunity passes.
The huge cost of missed opportunity
The following graph shows the potential impact of waiting a few years to buy a property; this is based on a purchase price of $750,000 and average 6.8% capital growth:
Whilst simplistic in nature, this demonstrates how you stand to have an extra $259,000 in equity if you purchase now versus waiting 3 years. Now multiply this out with a few properties, and also consider the impacts of holding for >10 years!
Waiting can be a very costly decision.
Should I invest now (August/September 2022)?
Yes...
As long as you can afford to do so, then now does present great opportunities!
You've seen that property is a proven investment vehicle, and also how there are many markets to choose from at any time. You've also seen the risks and opportunity costs of waiting to time the market i.e. sitting on the fence and not taking action.
But what about the current market trends and economy etc? Below are six facts about the current state of play which make it very favourable for investors,
6 key reasons why now is a great time to invest in property
Successful investors look beyond the doom and gloom portrayed in the media and consider the complete picture. Here here are some key reasons why now is a great time to invest in residential property:
Less buyers at the moment, less competition, more negotiating power (this won’t last!)
Listings have increased - according to realestate.com.au July recorded the highest number of homes for sale in over a decade; more to choose from means more opportunities
Migration plan of 195,000 in 22/23 just announced from Federal Government (read more and read the subsequent announcement here about the extra 35,000 places). This will increase demand for rentals and also sales.
A landlord’s market; according to Domain vacancies are at an all time low of 0.9%; we are in middle of a rental crisis so there is large demand for rentals which means rents have been and still are rising. Whilst not great for tenants, it is a fact and many tenants themselves are offering over and above the asking rents to secure a property.
Visa applications have surged - highest number in a month in 10 years very recently – indicating an influx of immigrants and also students is likely. This will also put more pressure on the rental market leading to higher yields. Also less untenanted properties for landlords - having a property untenanted is one of the key risks for investors so this risk is as small as it will probably get!
Australia's economy is strong and the unemployment rate is very low at 3.4%. Consumer confidence is also starting to turn around based on a recent Roy Morgan survey.
How to invest in property, with confidence and maximum success
Finances
First work out what you can afford - speak to your mortgage broker and get pre-approval. If you don't have a good mortgage broker we can recommend some to you.
You may not be able to borrow what you could 1-2 years ago, however, this simply means you may have to reset expectations and find a different property, possibly in a different location to what you envisaged. This is not a reason though to NOT invest.
Also make sure you have financial buffers in place.
Engage a Buyer's Agent and surround yourself with a Professional Team
Surround yourself with a professional support team – this includes a Buyer’s Agent who is focussed 100% on investments, Mortgage Broker, Solicitor and always involve your Accountant in any investment decision.
Here at Niva Property we have a close team of trusted Mortgage Brokers and Solicitors you can use, if you don't have these relationships in place already. You can engage them directly or we can coordinate them on your behalf.
When selecting a Buyer's Agent, be wary of "property spruikers" trying to offload stock for commissions; always make sure you partner with a trusted adviser who has your interests at heart.
It’s not all numbers!
Investors should also consider the non-financial side of property investing. We always check in with prospective clients to make sure they are in the right headspace and lifespace – for example if you are about to have a baby, it may not the best time for you. You must be ready.
We are all super busy, however, this is where a team of professionals can really assist so that you keep your investment goals ticking along.
