The new cycle of growth on Australia’s eastern seaboard has begun. Reality is, the best time to buy in places like Sydney would have been about six months ago. But by no means have buyers missed the boat – there are still plenty of reasons to buy today. Here are some things to think about for specific buyers looking to invest, buy their first home, upgrade or downsize.
Not only are rents continually growing, we are also at a stage in the market cycle where there is real potential for good capital growth in the very near term. And all at a time when interest rates are incredibly low, enabling many investors to achieve positive cash flow – or very close to it, from day one.
Don’t have the money for a deposit? Banks are offering 95% LVR loans again and there’s also the option to buy through self-managed super. Plenty of today’s investors are taking this path – in fact, there’s been a 23% surge in the amount of money invested in residential property via SMSFs since 2011. One in 25 Australians now has a SMSF.
First Home Buyers
Since the removal of the $7,000 grants for established properties, first home buying has slumped to just 4% in NSW and 6% in QLD – well below the long term average of 15%.
I really believe that some young people are missing the point. Today’s low interest rates make property far more affordable than it was when the grants were around. Add to this, rents are rising at a time when it is actually cheaper to buy in a huge number of suburbs.
According to RP Data’s latest Buy vs Rent report, there are 692 Australian suburbs where it is cheaper to buy than rent, based on a P & I variable loan of 5.4%. On a fixed P & I loan of 5.15%, this goes up to 864. Sydney and Brisbane both offer more than 70 cheaper suburbs.
The great news for upgraders is that the market is stronger at the bottom and tends to be weaker at the top, so upgraders have the opportunity to secure a great price for their current home then buy in at greater value for money further up the price scale. It’s a real win-win scenario.
It might be tempting for families to sit tight for a while, thinking that their current home will be worth more in a year or so as the market moves up. That’s true. But the home you’ll be upgrading to will also be worth more by then. The mid to upper brackets have a lot more recovery to get through, whereas the lower end has been strong for a while. It’s worth remembering that you can make great capital gains at the buying stage as well as the selling stage!
If you own a home in the middle to high price brackets of your market, you might not want to sell right now as prices in your sector haven’t been as strong as at the lower end – they will later in the new cycle.
However, if you want to downsize eventually, you might want to join a lot of other couples we’re seeing in the marketplace today who are buying their dream lifestyle apartment now with a view to renting it out until they can get top dollar for their current home.
Rental demand is still very strong, so there’s every chance your apartment will be self-sustaining while you wait for your primary residence to reach peak value. And while you wait, your apartment will be appreciating in value too. Plus, if you choose to buy a newly-built apartment, you will be able to take advantage of significant depreciation benefits in those first few years of ownership too, thereby reducing your tax obligations.
I believe there are exciting times ahead for all price segments of the residential market in Australia.