Is it too late to invest in property?

MARK PLASKITT, MORTGAGE BROKER

Let’s face it, in Australia – and particularly Sydney – we love property. Most people want to own their own homes, and almost as many would like to invest in property too. With property values in Sydney having increased so strongly in recent years, many people consider Sydney’s current property prices to be expensive, and recent growth rates to be unsustainable.

Some are asking whether it’s still worth investing at these prices.

Like most investments, nobody can guarantee what a property bought today will be worth in 10 or 20 years, or whether it would be better to buy one in two years’ time than today, so timing always involves some degree of luck. That’s not to say that you can’t do your homework and make well-considered decisions.

APRA forced banks to charge people with interest-only loans higher interest rates than borrowers with principal and interest loans, and to also charge investors higher interest than owner-occupiers. So if you are an investor and paying interest-only, your bank likely hit you with a double-whammy.

This makes investment properties a bit less attractive, and given that in the last few years many rents have not kept up with property price increases, many investors have become more cautious, which has led to lower auction clearance rates in many areas. In parts of Sydney, some property prices have actually been going backwards.

Does this mean it’s unwise to invest in Sydney property right now? It depends on what you want to achieve. If you are banking on strong short-term capital growth then you might be disappointed over the next couple of years, especially once you factor in the large acquisition costs of property, like stamp duty and legal costs. You might actually lose money.

If, however, you want a long-term investment, with regular income, then Sydney property may still be worth considering. Interest rates are at record lows so if you get a cheap loan (remember to shop around – banks aren’t well known for giving you their best rate unless prodded), then even despite the APRA-driven rate increases, a well-chosen property might yield enough rent to cover the repayments, and if you have a significant deposit then it might even generate you positive cash flow from the start.

Interest rates will likely rise over time, but so should rents, so if you look back in 20 years, history suggests property prices will likely be well ahead of where they are today, which should mean you are sitting on a tidy profit, and that’s the main point of investing – profit!

Alternatively there are plenty of other things you can invest in, and other (cheaper) property markets, but try to make sure you always understand what you are investing in – if you don’t understand it, then maybe you shouldn’t risk your financial future on it.

If you do your homework and seek professional advice, then it should always be possible to accelerate your long-term wealth-building by having the right strategy.

________________________________________________________________________Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. Mark Plaskitt is a credit representative 465173 of BLSSA Pty Ltd ACN 117 651 760 (Australian Credit Licence 391237), and Director of Calibre Mortgage Advice Pty Ltd in Pennant Hills.

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