Thursday, April 06, 2017

Property investors... the downside to popularity

The property market has been in the national spotlight for some time now. From predicted booms and busts, to discussions on negative gearing and stamp duty, property is consistently a hot topic across Australia. But it seems this popularity and attention (particularly off the back of Sydney and Melbourne) is now starting to create an unfavourable position for investors across Australia. Investors are being impacted, on two fronts.

The first... regulatory bodies are focussing on curbing investment activity. They're putting the brakes on growth by enforcing banks to reign in their housing investment loans.

So what's the impact on investors? 

Banks have raised the interest rates for investment loans so it is now more expensive for property investors to borrow funds than owner-occupiers. Under the new reforms, a $400,000 loan can typically cost an investor an increase of $100 a month with the latest rate hikes. And if you are currently an investor with an interest-only loan, you may see an uplift of up to 0.31% on your variable rate. These types of increases are unprecedented in recent years. And it's now no longer purely the Reserve Bank of Australia (RBA) driving interest rate changes. We saw this earlier in the week when the major banks raised rates prior to the RBA meeting. The environment is changing.

The second... as the popularity of property grows, house prices continue to rise, however rents are not keeping up as seen on the eastern seaboard.

This trend is particularly noticeable in Sydney suburbs where buyers are parting with $1.3 million to secure a two bedroom unit without a car park. While investors are still flocking to purchase these homes, what they may not realise in the buying frenzy, is these properties are achieving rents of $700 per week... at most. With property prices sky rocketing, rents are not keeping up and yields are deteriorating.

Looking locally at our returns of up to 5.5%, it's no wonder there is demand to purchase property in cities such as Adelaide, and even Hobart, where affordability and stable returns are creating a favourable investing environment. We see the Adelaide property market is in good stead to weather the impact 
of the changing lending and market conditions that lie ahead. 

So how can you take steps to protect 
your investment?  

More than ever, property investors or their managing agent will need to be proactive with those areas that can be controlled. Obtaining tax depreciation schedules, tailoring a maintenance plan for your property and receiving quality advice on your funding will 
no longer be optional... it will be a must.

For this reason, at Toop&Toop we have moved our focus to a holistic investment approach. In addition to the day-to-day property management, our team work closely with a range of experts to ensure our clients have access to the best advice in each core specialty.

In this changing environment, it's important to be prepared so that you don't experience the downside to popularity. Be sure to reach out to me or our property management team to have a chat.

Suzannah Toop

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