Why investing in property now could be the smartest move

Is investing in property the right option for you? We asked Founder and Managing Director of Mosaic Property Group, Brook Monahan all of your investment property questions in light of the recent market conditions and as we enter into recovery post-coronavirus. Learn why buying property in a volatile market could be the smartest move you make.

How can you tell if the property market is volatile?

There is a clear sense of uncertainty out there, which is understandable given the continuing flood of media stories, many of which are still predicting doom and gloom, despite Australia leading the world in its handling of the health crisis.

The most pragmatic approach to understanding property market volatility is to follow real estate listing and transaction volumes, which are normally lead indicators for falling house prices (and vice versa).

While we have seen a clear drop across the board in numbers of listings and transactions, it is much more likely that property will enter a period of substantial hibernation over the next three to six months, or until life starts to return to “normal”, most likely in the latter half of 2020.

Whilst there is likely to be evidence of modest price falls over the next 6 months in areas where larger concentrations of investor grade housing are more prevalent (and Sydney and Melbourne are at greater risk in general in our opinion), I certainly do not expect there to be widespread falls witnessed during and post the GFC despite the significant short-term rise in unemployment.

 

What are the risks of purchasing a property in this type of market?

There are risks involved when buying in any market. An important lesson from previous downturns is the importance of taking a long-term outlook, which always outperforms short-term hasty thinking.

By mid-2021, once we are largely through this crisis, infrastructure delivery is fast-tracked, jobs rebound across most sectors, and the virus is, hopefully, all but eradicated, we will see positive improvement in asset values, none more so than those underpinned by land.

This has been the case for every crisis and cycle that has existed prior to this one over hundreds of years, and we expect this current crisis is laying the foundation for an even stronger real estate cycle from mid-2021 to 2024/25.

The real risk, regardless of market cycle, crises, or conditions, is to purchase property without considering a range of critical factors that underpin reliable capital gains in real estate over a medium to long-term horizon.

Many investors, particularly from Sydney and Melbourne where budgets are becoming much more constrained due to the strong price rises of recent years, make the huge mistake of buying blind, based on price. This means they are often buying mediocre property, in a mediocre location (where supply is often less constrained) that has limited appeal to the end user, resulting in weak long-term returns for investors.

There are opportunities in all markets, but especially now it is important to bring emotional and rationality together to ensure that any property investment ticks all the right boxes relative to genuine underlying market demand. Hence why we are seeing a flight to quality.

Smart investors are looking at property from the perspective of whether they, themselves, would live there. The location, the quality and size of the product, functionality, quality of finishes, track record of the developer, and locational attributes such as access to employment, infrastructure, schools and lifestyle. All of these are important considerations, now even more so as this crisis has led many to reassess the way they want to live and spend their time.

 

Are there any benefits to buying now rather than waiting?

With the view that we will be out of this crisis in 6-12 months, buying off-the-plan (which generally has an 18 to 24 month construction program) is ideal as it means locking in a brand-new highly exclusive property at today’s prices with only a 10% deposit and with the added advantage of a potential increase in value on completion, at a point in the future when property is leading the way for a strong economic recovery here in Australia; mid 2021 onwards.

 

Will there be differences in the performance of property based on the property type (e.g. house, apartments)?

It is commonly assumed that owning land will offer the best opportunity for future value uplift however in many ways this is an outdated view, given it overlooks key factors that make apartments the stronger investment option in many instances. Here is why:

  • High-Value Locations – Surrounding amenity, services, lifestyle attributes and infrastructure are vital to drive residential demand and future growth prospects, and these are generally always located in greater volume closer to the city or key nodes where medium to higher density apartment development is more prevalent.
  • Government Investment – Providing infrastructure to outer suburban areas where detached housing typically exists is often cost prohibitive and slow to be realised. Values generated from improvements in infrastructure, such as a new transport network, are capitalised on by surrounding property values.
  • High Demand & Low Supply – There is a misconception that land is always in undersupply. Ample land supply exists in every major capital city and regional market in Australia which will be further prolonged given lot sizes are becoming even smaller.
  • Preferred living option – The population is increasingly drawn to the lifestyle afforded by medium to higher density environments including restaurants, shopping, transport, entertainment and schools. The demand required to drive investment returns is not present from the very low population base in outer region greenfield sites, which can take years to build.
  • Higher Rental Yields – Apartments typically provide far greater amenity, less maintenance and better security, and tenants are more likely to pay a premium for a high-quality new apartment.
  • Preferred Asset Class – Australian investors strongly favour apartments, with CoreLogic reporting that investors favour apartments over detached housing by around three times. This percentage has grown considerably in the last decade and this trend is likely to continue.

Will all areas be affected in the same way?

No – not all regions and the multiple markets within each, will be affected in the same way. There are always going to be those areas that remain in demand. Locations that are close to infrastructure, deliver greater lifestyle appeal are going to continue to attract a greater proportion of people.

It is our firm view that high-quality residential property located in-demand areas with low current and future supply, delivered by trusted brands with a strong track record, will hold up very well in the short-term and lead price growth when the market recovers from this crisis.

If you are looking to invest in property, ensure you conduct thorough research and understand your risk profile and overall investment goals.

Lowest interest rates for 1-year fixed home loans

The comparison table below display some of the 1 year fixed rate investment home loan products on Canstar’s database with links to lenders’ websites available for a loan amount of $350,000 at 80% LVR in NSW, and available for Principal and Interest repayments. The results are sorted by ‘current rate’ (lowest to highest), then by provider name (alphabetically).

*Comparison rate based on loan amount of $150,000. Read the Comparison Rate Warning.

Lowest interest rates for 3-year fixed home loans

The comparison table below displays some of the 3 year fixed rate investment home loan products on Canstar’s database with links to lenders’ websites available for a loan amount of $350,000 at 80% LVR in NSW, and available for Principal and Interest repayments. The results are sorted by ‘current rate’ (lowest to highest), then by provider name (alphabetically).

*Comparison rate based on loan amount of $150,000. Read the Comparison Rate Warning.

Lowest interest rates for 5-year fixed home loans

The comparison tables below display some of the 5 year fixed rate investment home loan products on Canstar’s database with links to lenders’ websites available for a loan amount of $350,000 at 80% LVR in NSW, and available for Principal and Interest repayments. The results are sorted by ‘current rate’ (lowest to highest), then by provider name (alphabetically).

*Comparison rate based on loan amount of $150,000. Read the Comparison Rate Warning.


Profile image of Brook Mosaic Property group About Brook Monahan 

Brook Monahan is the Founder and Managing Director of Mosaic Property Group. He has close to 20 years’ experience in property development, design, construction, finance and funds management.

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