Many property investors are finding it hard to capitalise on the current market due to the tightening of the lending environment across Australia. Should they sit this cycle out or continue chasing opportunities?
Following the end of the property boom, several interventions have been laid out to alleviate affordability issues and other concerns about the property market, resulting to stricter regulations on investment lending.
However, while some investors opt out of the market due to lending constraints and the fear of a cataclysmic fall, many are keen to continue capitalising on the current market, according to Pure Finances’s Brendan Dixon.
As money becomes cheaper and competition becomes scarce, today’s market might just be the best avenue for wealth-creation.
At the moment, the lowest interest rate that home buyers can get sits at around 3.55 per cent to 3.59 per cent, which is significantly lower than the rates of the past decade.
In fact, 10 years ago, interest rates on home loans go for 6 per cent to 7.5 per cent. Prior to that, in the early 1990s, interest rates can go as high as 18 per cent to 19 per cent.
Mr Dixon said: “They're really cheap. In 2009, working for a bank, I was selling mortgages at about 6.7 per cent. People who haven't had that experience don't understand that anything under 4 per cent is magical.”
“If you're looking long-term with your investment and you manage it and review it regularly, it'll be fine. As long as you do due diligence and you know you can afford it, you'll be fine.”
Knowing that these low-interest rate environment won’t stay forever, the property expert strongly encouraged investors to take advantage of the buying opportunities in the market.
“It is an excellent time to borrow money because it's very cheap. As long as you can afford to pay it back, there’s nothing to worry about.”
Apart from cheap money, the absence of a high volume of competition would be benefiting those who take advantage of the opportunities in the softening property markets across Australia, particularly Sydney and Melbourne.
“Time is the biggest factor. If you just wait, you will make the gains. The problem with the people in the market, especially newcomers, they want everything now. Unfortunately, you can't control the market.”
“If you look at the long game, you have an opportunity to just build wealth by putting in a relatively small amount. The impact of capital growth and compounding is really, really significant,” Mr Dixon said.
To be able to navigate the property market amidst a tight lending environment, Mr Dixon advised investors to maintain a good ‘financial health’.
While it is generally challenging to continue growing a property portfolio considering the softening state of the market and the current lending constraints, success is simply a matter of ‘dotting the i’s and crossing the t’s’.
Once they have found the right property at a good location, sold for a reasonable price, investors are advised to assess their lifestyle in terms of finances.
What are your living expenses? Do you have existing loans? How are you making repayments?
According to Mr Dixon: “If you're looking to get finance-ready, you should be making sure that your credit card payments are being made on time, your car lease is paid on time and you know what your monthly living expenses are—there should be no surprises.”
“What happened of in the last 12 months aren’t so much policy changes, but more on the verification piece. They're spending a lot more time verifying your information, going through your bank statements to see if there are any unusual transactions.”
“Not having any defaults or credit impairments, that definitely helps with your credit score, too.”
At the end of the day, the stricter lending regulation only means that banks and lenders are making sure that the investor is capable of servicing the loan they are applying for.
To further mitigate risks, investors are advised to engage property professionals, where appropriate.
“Being able to look after your finances, knowing how much you're spending and feeling comfortable with that means you're in a good position to buy. If you're on top of your expenditure and you’re earning a regular income, you’ll be fine,” Mr Dixon concluded.