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Investors urged to adjust, not retreat, as market resets
Rather than stepping away from the slower market, investors need to adapt and use the downturn as an opportunity to uncover value and take advantage of lower competition.
As softer conditions, new reforms, and greater uncertainty shape the property landscape, investors are being urged to prioritise cash flow, flexibility, and financial buffers to navigate the market.
On the Property Investing Insights podcast, Right Property Group co-founders Reshmi and Victor Kumar said despite the change in the economy, there were opportunities still available in the market for those willing to look for them.
A market in condition
Victor said the market was undergoing a gradual shift away from the negative gearing changes, with the focus now on borrowing through self-managed super funds (SMSF).
“For the next 12 weeks, we’ll see the SMSF headlines, and then the true markets will start emerging as to how much momentum we’ve lost because temporarily, the SMSF purchases are buoying the market up.”
He said that there was likely to be a two-fold market, with some investors opting to seek wealth creation by continuing to purchase established properties, while others will seek a cash flow strategy.
“So there’ll be a little bit of balancing seasonally there. And then the next big season would be New Year’s, which will, in our opinion, reset the market.”
When it came to the slower market, Victor projected that in a year’s time, there would likely be a bounce-back in conditions due to the current undersupply.
“So it’s a matter of, okay, we had hit a big wave, so the boat has stalled, it’s just temporarily stalling, and then it powers ahead again.”
He said that currently, investors had to focus on buying within their means and ensuring the fundamentals supported the decision.
He said the key fundamental was whether owner-occupiers made up at least 60 per cent of property buyers in the area, which would usually help to keep prices resilient.
“For our recent purchase … we took advantage of the market, and we picked up a property that potentially was a million dollars cheaper than an offer they had rejected in February.”
“Buying on the way down has other advantages, and that is there’s a lot less competition.”
Don’t wait for the bottom
Despite the slower conditions, Reshmi said investors shouldn’t simply stop buying, but should readjust their strategy so that any potential risk is reduced.
“If I had the ability to purchase, I would purchase, and I would make sure that all my risks are minimised as much as possible, including not borrowing to my maximum capacity,” she said.
By putting financial buffers in place, Reshmi said if prices fell further, investors can have the assurance that they had room to move.
“So you’ve just got to protect yourself along the way. But you can’t stop buying because of this.”
“You won’t know when the bottom is, like when you’ve hit the bottom of the market. So if you’ve got opportunities and you have the ability to buy, you should be buying.”
Flexibility is the new advantage
According to Victor, investors also needed to be able to both recycle equity and improve cash flow, while assessing a property’s long-term capital growth prospects.
“We’re looking at it from two facets; one is the immediacy of it. So how can we get our money back out as immediately as possible and how can we work it as efficiently as possible?”
He said that comparing a property’s current price with its peak market value could help investors determine whether they were buying at good value and better protect their deposit.
Additionally, Victor said investors should seek to strengthen their finances while they still can by accessing available equity, and avoiding borrowing too much.
He recommended keeping extracted funds in an offset account to improve liquidity, but advised against cross-securitising loans in the current market as it reduced flexibility if they needed to sell or refinance.
“We need to be very mindful that any properties you add as standalone loans until the market returns to normalcy; then you can decide whether there’s efficiency in cross-securitising.”
Victor also advised maintaining an 80 per cent loan-to-value ratio (LVR), which enabled a greater equity buffer and more room to manoeuvre if property values declined further.
“At 80 per cent, you’ve got greater flexibility because you’re not also having to go through the tick boxes of the mortgage insurer to get your 90 per cent.”
Listen to the full episode here
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