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After two years of facing several hurdles, experts say that upsizers should take advantage of the softening market conditions to move up the property ladder.
Real estate market upgraders or upsizers can save up to six figures or more if they know how to leverage the market conditions and upgrade their property, according to Pete Wargent, co-founder of BuyersBuyers Australia.
He explained that the time is ripe for owner-occupiers who have wanted to move up the property ladder but had been held back over the last two years by strong competition and lack of funding to level up their properties.
“The cost, time, and stress involved due to the market conditions over the past couple of years prevented many from upgrading. Often there simply wasn’t the suitable stock available for upsizers to move into, and many were fearful of selling in case they couldn’t get back [into] the market,” he surmised.
The expert further argued that the rising listings on the market open up more opportunities for upgraders, citing the recent data from CoreLogic showing that the total supply on the market is tracking just 5 per cent lower compared to the same period last year.
Data also showed that in almost all cities (with the exception of Brisbane and Adelaide), supply has also normalised from the lows seen throughout the pandemic.
According to Mr Wargent, the data indicated softer market conditions, which has historically been an “excellent opportunity” for upsizers, as the amount of money they need to climb the property ladder becomes smaller.
The expert gave a sample scenario to further back this observation. “A simple stylized example shows that if housing prices decline by, say, 5 to 10 per cent, then a couple upgrading from a $1 million property to a $2 million property, may be able to secure the new purchase for a price of around $1.9 million, or even $1.8 million.
“Even if they have to take an equivalent percentage hit on the sale of their existing property, this can still work out well for them, although there are always the stamp duty and other buying and selling costs to factor in. But, of course, in a declining market, the stamp duty on the new purchase should also fall accordingly,” he explained.
Mr Wargent also underlined that market timing and asset selection are key variables in the results of any property buy.
Market conditions primed for premium property buyers
BuyersBuyers’ chief executive Doron Peleg said that buying opportunities often emerge for upsizers or upgraders at this stage in the market cycle — as the higher end of the market tends to be less liquid and more volatile.
He stated: “Moving up on the property ladder usually means either buying a larger property in a similar area or buying a property in a superior or more expensive location.”
Mr Peleg also pointed upgraders towards the premium or top end of the market as an opportunity-rich sector, describing it as “ thinner, can be more volatile, and is also often more impacted by interest rate changes”.
“We’ve seen the upper quartile of the market outperform since the pandemic lows, but this segment of the market will likely now underperform as mortgage rates rise,” he added.
The industry expert also explained that softer market conditions afford upgraders more time and more consideration — leading to them potentially selling first and buying later — as more opportunities arise.
For upgraders who are honing in on potential hotspots for upsizing, Mr Wargent said these golden opportunities are likely to arise soonest in Sydney and Melbourne, where interest rate changes will be felt strongly first.
Mr Wargent said, “most homeowners in Sydney and Melbourne have built up some equity over recent years, as prices have increased, and there is a backlog of young professionals and families wanting to upgrade in the market to gain access to more space”.
“Initially, there will be opportunities for upgraders wanting to buy homes in suburban Sydney as prices come off their highs,” he added.
He also noted that prices also appear to be cooling in parts of suburban Melbourne and could indicate that other parts of the Victorian capital will follow the same downward trend in prices in the second half of 2022.
Mr Peleg also called on property owners to think twice about their decisions regarding their living conditions. “The temptation in a falling market can be to sell the family home and rent, but sometimes owners can come unstuck with that approach if the market begins to rise again.
“Overall, a well-executed upgrade in a softer or declining market can prove to be a financially astute move,” Mr Wargent said.