It’s hard to avoid the negative headlines about all things property and finance at the moment. If you’re a property investor, or you’re considering becoming one in the future, all of this noise can really cloud your judgment and can make it difficult to make a clear decision about what your next step should be.
So, I thought I would take the time to address some of these concerns. As an experienced property expert with almost two decades in the industry behind me, I’ve experienced the ups and downs and many property cycles and scenarios, so I’m keen to unpack some of the current challenges and let you know how I move forward, even in times of great instability:
1. Rising interest rates.
Yes, interest rates are rising. But they’re actually just returning to pre-covid levels, which is a good indicator that we are coming out of that initial pandemic economy. We’ve been here before, if not far worse; does anyone remember what interest rates were like just before the GFC? Most of my loans were between 7% and 8%.
Internationally, we are actually one of the slowest countries to move off the mark when it comes to increasing rates. It can be difficult to manage when you suddenly have to pay more money for something today than you paid yesterday, but it’s helpful to remember that this is the nature of mortgages, finance and markets. Rates ebb and flow. They will rise, and they will fall. The most important thing you can do is ensure you have the best mortgage for your situation, and monitor your budget so you don’t fall into mortgage stress.
2. Property markets are cooling.
According to CoreLogic, the property market is cooling, with the data for May confirming that prices are no longer growing month on month. Further cooling of the market is expected, and that’s actually perfectly okay. In fact, it’s normal – this is what happens in property. It’s cyclical, which means values cycle through peaks and troughs.
There is less activity from the high we had in 2021, boosted by government grants and incentives. But remember, there are many market segments and whilst some are more vulnerable to price fluctuations, the most affordable and most desirable markets will retain a high level of activity.
The next 12 months are going to be a great time to buy, especially an investment property, with such strong rental returns. Rents are rising and property investors who stay the course through this challenging period will benefit from these strong returns.
3. Construction prices are soaring.
Following covid lockdowns and supply constraints, the cost of building new property is more expensive, to the tune of around 30% in some areas.
It has been a really difficult 24 months, with demand from incentives like Home Builder putting a lot of pressure on the construction industry. While many builders grappled to keep up with fluctuating supply and demand and increasing prices, I believe that the builders quoting now have a better handle of costs and timeframes, than those who quoted last year to build at a time when costs have increased.
Getting started now as the market cools could be ideal timing, as it allows supply to catch up, and with less competition in the market, your chances of completing your build on time increase. With people wanting more space and even the size of unit households shrinking, there is still a need to provide housing.
4. Some builders are closing their doors.
We’ve seen this in the news, and it’s understandable that this is making people nervous.
Consumers are coming to terms with the actual cost of construction in 2022, much like we have had to adapt to the cost of food. If people are seeking the ‘cheapest’ prices, it’s important to remember that it’s those builders who undercut or take on contracts that are not financially feasible are more likely to end up in liquidation.
The whole industry is recalibrating to set the way forward. At API, we have been working with trusted and experienced builders for many years. We can help connect you with builders who have a proven track record, and talk through any concerns you have to ensure you feel comfortable. Likewise if you are a buyer who has land but no builder, feel free to reach out to us and we will assist you with a quality house plan and package to complete your project.
Overall, 2022 could be an ideal time to build wealth through a property investment. If you’d like to learn more about the options available to you, contact our friendly team for an obligation-free chat today.