Is the tide turning for property investors?
The federal election has been run and won. Now it’s time to get back to some normality.
My key takeaway from this recent election is to re-confirm that no one can predict the future. It also reminds me that there’s no point sitting on the fence worrying about something that might never eventuate. This recent election result sure did shock plenty of people.
I permanently migrated to Australia in 1997 and since then (not to mention before I arrived), negative gearing has always been a hot topic. People always want to know what would happen if they took it away?
I’ve also noticed that every time an election is announced, everyone sits on the fence and does nothing. It doesn’t matter if the result will change very little, people still sit on the fence.
Well, in my opinion, the time for fence sitting is over. I think this was the final big hurdle in the way of the property market turning back to a rise. However it’s not just the election, it’s a number of factors:
We need to ask ourselves, what is actually going on?
1) We’re almost 2 years on from the peak of the property market in August 2017. The market doesn’t rise forever, however at the same time it doesn’t fall forever either. In my experience, 2-3 years is typically the length of time you see in a downturn.
2) The Royal Banking Commission seems to have been forgotten about and not many people are talking about it these days – it’s last year’s news. Have you noticed? Yes sure, there are some changes as we move ahead, especially around interest only loans changing to principal and interest (P&I) in the future, but for many that’s a few years away and so it’s not in our short-term worry horizon.
3) The RBA is discussing interest rates dropping which excites most people with a mortgage. Even if the banks don’t pass most of it on (they do this by blaming wholesale funding rates or crying because they’re not making enough money these days), it will still give people a positive vibe. The first drop could be seen in the next meeting in a couple of weeks and there’s even talk of a second drop after that.
4) Banks are saying that the high P&I interest rate serviceability figures they’re being recommended to use are now too high and need to be reduced. The banks need to make money, the governments need the banks to make money to keep their high international risk ratings and so that means they need to lend. No one thinks we’re in danger of being in a bubble as prices have already fallen and so I think there’s a good chance they’ll relax the borrowing criteria and start lending again. Many are already dropping their fixed rates too which is a good sign regarding the short to medium term for mortgage repayments.
5) There’s soon to be assistance for first home buyers that can’t save the 20% deposit and have been struggling to pay the Lenders Mortgage Insurance (LMI) premium. Although no one knows what it looks like yet, everyone loves an incentive and that is just what some of the fence sitters need – a good positive reason to make a move.
In my 25+ years as a property investor, I’ve declared many times that I never try and time the market – I buy when:
1- I’ve got the deposit
2- I can get a mortgage and
3- when I’ve got the cash buffer to take me through the next few years
So you need to ask yourself this – “Do I think property is going to be more expensive in 10 year’s time and will I do whatever it takes to hold onto that property until then?”
In my mind, that’s the time when you should buy. Let’s hope the negative gearing debate can be put to bed for another 3 years and life can get back to normal.
Do you agree? Disagree? Head over to our facebook page at https://www.facebook.com/yourempire/ and let me know.
This article was originally posted here http://www.apimagazine.com.au/property-investment/the-tide-could-be-turning in “Australian Property Investor”.