With recent reports citing a “cooling off” in the Sydney real estate market, are there still opportunities in Australia for savvy investors?
The short answer is yes, but you’ll have to be vigilant and put in the hard work…and you’ll probably also need to look outside of just Sydney and Melbourne!
That’s according to wHeregroup founder and property investing guru Todd Hunter, who recently sat down with Home Loan Experts to spill the beans on his strategies for finding the right investment property, managing a portfolio and what investors need to know about borrowing in today’s changing lending environment.
What do I need to know about the market right now?
Sydney clearance rates fell to 71 per cent over mid-September, down from around 90% in May, the most recent report from Australian Property Monitors (APM) and Domain Group found.
Although there are still areas with 100 per cent clearance rates, such as Camperdown and Dulwich Hill, the suburbs of Canterbury, Revesby, Hurstville, and Waterloo have all fell sharply.
CoreLogic RP Data also recently stated that Sydney’s auction market has consistently been performing lower than at the start of the year when the clearance rate was well above 80 percent.
With all eyes on Australia’s most expensive city, what does this mean for investors?
Home Loan Experts senior mortgage broker Hank Hong believes it’s a long overdue market correction in Sydney but nothing to run to the hills over.
“I don’t see Sydney crashing, a correction of maybe 5-10%, but these prices are here to stay,” Hank said.
In the June quarter alone, Sydney residential property prices have grown by 8.9 per cent, a faster rate of growth compared to preceding quarter (March), which grew at a rate of 3.1 per cent, according to the Australian Bureau of Statistics’ (ABS) most recent property price index.
This was followed by Melbourne, at 4.2%, and Brisbane, Adelaide and Canberra, which all reported moderate growth of under 1 per cent.
Hobart remained unchanged, while Darwin (-0.8 per cent) and Perth (-0.9) both reported negative results, the latter most likely due to the slowdown in mining growth.
Of course, these figures are only important to you if you’re looking to take advantage of capital growth in the short to medium term.
If you’re just starting out, here are Todd Hunter’s top tips for new investors in 2015/16.
Todd’s top 3 tips for finding the right property
Be prepared to put in around 4-6 hours per week researching and time on the weekend traveling to your destination and inspecting properties, even if that’s interstate.
If this becomes too much, engage the services of a buyers agent who purchases properties similar to what you are after.
There’s no point engaging the services of a property company who only sells off the plan units if you’re after an established, 4-bedroom house.
Why compete for property in a heated market?
Buck the crowds and buy in great locations but in the low part of their property cycle. That way you won’t have any competition when negotiating on a house and you’ll be in a better position to negotiate a far better deal.
Invest in established properties and not new house and land packages or off the plan. Buying new means you are paying retail for the property with no room to negotiate.
More often than not, the second owner of a property purchases the property for far less than the original purchaser. It works the same way as buying a car.
Todd’s top 4 hints for managing a property portfolio
Stick to one lender as much as you can.
Banks reward loyalty with better interest rates and, from a practical point of view, it allows you to manage your mortgages through one internet banking portal.
The important thing to remember is that just because you’re with one bank, it doesn’t mean that your portfolio is crossed-securitised.
A good mortgage broker will structure your portfolio so this is not the case and each of your investment loans can stand alone.
We’re currently in uncharted waters when it comes to low interest rates so take advantage of them.
Look at locking some of your investment loans into fixed rates so that when they go up again (and they will), you won’t be caught with paying more than you have to.
Leave some of your investment loans variable so you can still make extra repayments.
Keep all of your statements and paperwork for every property that you own and have a property folder for each property.
Spend 15 minutes every month filing it in the right folders and make notes where required.
It’s much easier to remember anything important at the time it occurs rather than at the end of the year when your accountant asks you.
Make a folder in your emails for each property and file every email you receive for that property. By doing this, you can always go back and review those files at any stage very easily.
Set reminders in your calendar the day before each repayment is due, that way you can make sure you have enough cash ready in your nominated account to make the repayment.
What you need to know for the next year
Steer clear of investing in Sydney and Melbourne: those markets are done and dusted.
Don’t be afraid to look to large regional towns to invest in. Once capital cities come off the boil, large regional towns are the next to follow as investors look for better yields and value for money.
Do your numbers and work out if you could afford to pay off an investment loan at an interest rate of 9.00%.
If your cash flow is tight but you can still afford to meet your mortgage repayments comfortably then you should be ok to buy.
Bonus tip from Hank: Hank said recent changes to investment lending policies have had a major effect on easing clearance rates in Sydney, specifically:
- The increase to investment loan interest rates.
- The increase to serviceability assessment rates, making it tougher to borrow at a high Loan To Value Ratio (LVR).
- The fact that some lenders are no longer considering negative gearing as part of their serviceability assessment.
For more information on these policy changes, check out our ‘Ticking Time Bomb For Investors’ blog post.
Want to start investing in property?
Call us on 1300 889 743 or fill in our free assessment form to speak with one of our investment loan specialists today.
Disclaimer: Please seek independent financial advice before making any financial decision relating to investment. The preceding statements are the opinions of Todd Hunter (wHere Group) and Hank Hong, are not necessarily correct for your financial goals and do not reflect the opinions of Home Loan Experts. They are not be taken as financial advice.