Many property investors are concerned about the future of their investments due to several “doom and gloom” headlines talking about the fall of property markets. Should everybody actually heed these as warnings or should they continue growing their property portfolios?
Headlines around despair in property markets have been going around for about five years, and while the worst has not happened yet, there are certain factors that make a lot of investors more uneasy.
“You’ve got lenders which are under pressure from the regulatory body, [Australian Prudential Regulation Authority], to ensure that the minimised growth within their investment lending portfolios. That’s had an impact now,” Smart Property Investment’s Phil Tarrant explained.
“Most of the banks have increased interest rates for investors… [and they are now] looking to do serviceability metrics on much higher levels than what they have done in the past, 7 per cent principal interest. It’s getting harder for investors to secure money.”
Moreover, some parts of Australia are also going through trying times in terms of macroeconomics. “You have markets like Sydney which has many ways topped out. There’s not much growth left but you come back to the reality that there’s more people coming to Australia, there’s more pressure on housing,” Phil said.
The debate around whether the bottom is going to fall out of the property markets or not is still ongoing, but buyer’s agent Steve Waters believes that investors may be paying too much attention to “doom and gloom” and, as a result, are underestimating the opportunities to continue growing their portfolio.
While there could be a common factor affecting the cycles, it is incorrect to generalise the movements of property markets across the whole of Australia.
Steve explained: “There [are] markets within markets … The states are at different parts of the cycle more so than, perhaps, ever at the moment. Then when you drill down, if you look at the CBDs [central business districts] throughout the country, probably excluding Sydney, most of them are in an oversupply situation. Then as you go out further to the suburbs and, perhaps, even more so the detached dwellings, they’re still percolating very, very nicely.”
While certain property markets are softening or slowing down due to several varying factors, there’s no looming “doom and gloom” for Australian property markets, according to Steve. In fact, the temporary halt in growth may actually be beneficial for the property investment landscape in the long run.
“Is there doom and gloom? I would think not. I think there’ll be a softening of the market in certain areas, for sure, and there probably needs to be … We’re going to look at, maybe, periods of no growth for some years, which is okay, but … at the moment it’s all around finance,” Steve said.
“At the moment, it’s harder to get money as an investor [because] they’re decreasing LVRs [loan-to-value-ratios] and they’re tightening up on serviceability calculators or calculations, and I think that’s okay as well. There [may be] a period where money was a little loose, and they need to reel it in so that we don’t go to this boom-bust scenario.”
According to the buyer’s agent, these seemingly unfortunate scenarios create a balance in the property markets so they remain sustainable.
“We want longevity within the market,” he said.
“[When] things are sustainable, you can make them scaleable, and that’s the idea because property investment’s creating wealth through property.”
Tune in to Phil Tarrant’s portfolio update on The Smart Property Investment Show to know more about his acquisition costs, “boring” assets, risk mitigation, cash flow management and yearly income, as well as the inside scoop on a new property that could take the team’s investment strategy to the next level.