The Sydney real estate market may have scared off some buyers in the past 24 months, however, smart buyers and property investors know that now is the time for a property investment in Sydney -- and a particularly good time snap up a Sydney apartment.
In fact, the 2019 Property Investor Sentiment Survey found that a whopping 82 per cent of property investors said that “now was a good time to invest in residential property.”
1. Supply & Demand
According to CoreLogic data, Australian dwelling values fell 4.8 per cent through 2018, marking the weakest housing market conditions since 2008.
In some parts of Sydney, we are seeing prices down as much as 20 per cent from their peak. With prices lower and stabilising buyers should get in now before prices go up next year due to supply shortage.
“We are now at the tail end of the construction boom and most projects areas such as Green Square, Canterbury, Bankstown, Randwick and Macquarie Park are completed or nearing completion,” said Peter Kerras, Director Project Marketing.
The Commonwealth Bank forecasts an apartment shortage by 2020. Therefore, rents will inevitably rise due to current stock in the market being absorbed over the next couple of years with continued immigration, which will mean prices will increase. Smart investors are aware of this timing and acting now before prices rise again.
“Most of these projects have been absorbed by the local rental markets and there is very little in the pipeline for at least the next 2-3 years. Some councils like Ryde Council have even put a freeze on new development approvals,’ added Kerras.
“Prices are still very attractive on the tail end of completed projects which means now is a better time than ever to buy,” concluded Kerras.
Scoring a top-quality investment will pay off big dividends in the long run.
2. Lower interest rates
“We are now in a position where interest rates are lower than rent returns – we have never been in this position before,” says Kerras.
Finance figures also indicate this improved investor sentiment. In August figures published by the ABS show that investor home loans grew faster than almost any other time in the past three years. New investment loans jumped 5.7% from July to $4.9 billion in seasonally adjusted terms.
If you believe you can achieve an investment return greater than the mortgage rate, then you are better off to use borrowings to invest in property or shares, not your own cash.
Some banks will allow property investors to take out interest-only loans with smaller deposits. Westpac announced it is raising the maximum loan-to-valuation ratio (LVR) for interest-only loans to property investors to 90 per cent, from 80 per cent.
“We are in a fortunate position where rent returns are either in line or higher than mortgage repayments, “ adds Kerras.
This is a unique advantage for investors who can buy cash flow positive property but also benefit from negative gearing.
3. Negative Gearing
In the past 2 years investors have been discouraged to buy through tighter lending policy, reduction of depreciation and fear that the government will take away negative gearing.
More recently banks have relaxed strict lending policy for investors, and there have only been slight changes to depreciation. Negative gearing has been maintained, which remains the biggest incentive for investors.
“I'm always amazed at the amount of people that don't know how to negative gear or that an investor can claim a depreciation on new or old properties to assist with their tax advantages,” says Mark MacKenzie, Sales Director Residential.
“People need to speak to a tax expert to understand the value of purchasing a new property over an old one and the depreciation that can be obtained from it to benefit the investment,” advises MacKenzie.
A history lesson
You only have to cast your mind back a decade to see the wisdom of buying now. When the GFC hit, it was the savvy cashed-up investors who were buying while others were selling or running scared.
Those who bought then are certainly laughing now. The market will inevitably rebound and those who have capitalised on the short-term downturn will be amply rewarded in the long-term.
In its Residential Property Prospects 2018 to 2021 report, economic forecaster BIS Oxford Economics predicts that Sydney’s median house price will bottom out at 8 per cent below its June 2017 peak before turning up again.