Is the property bubble going to burst? Is it a good time to buy? Should I rent instead of buying? Why is everything I like $4 million dollars?
You can’t go to a social event – be it a bbq or a networking event – in 2018 and not have talk inevitably turn to real estate. We sat down with Emily Power, author, property commentator and editor of Domain magazine, to ask her the tough questions. Emily is also joining our next Masterclass Online webinar – head the events page to register your spot.
With skyrocketing house prices in many of our capital cities, is the Aussie dream of home ownership even worth it anymore?
Renting in Australia is not a secure, long-term proposition as it is in other countries, and that alone is cause for some to seek the future security of their own property.
However, it is smart to seek counsel, from a financial planner, to work out if your salary, savings and personal ambitions lend themselves to a property purchase or another form of investing which will also provide security in retirement age.
Don’t give up on the property dream. The price boom dragged along once humble suburbs, that we may not have put high on our wish lists when searching for a home, front and centre. Baristas and boutiques have sprung up in so-called “bridesmaid suburbs” (ie. less popular, second choice postcodes) to respond to the spill over of demand from buyers who are priced out of more expensive neighbouring suburbs.
This means there is an opportunity, still, to buy into under-the-radar postcodes that are up-and-coming, offering lifestyle, infrastructure and amenities, in an affordable price bracket. Suburbs change, and did so rapidly during the property price boom (particularly in the high-value capital cities along the east coast of Australia), which means that there are more choices, than ever before, of suburbs that might tick the boxes for you. However, you will likely need to compromise on something, be it choice of suburb, size or type of property, and commute time to work.
We will not make money from property in the manner of our parents, and Baby Boomers, but a switch of thinking, away from property as a commodity and more towards the comfort of a roof over our head, might help us find (and accept) a cheaper property in a less trendy suburb we once might not have not considered.
Is ‘rentvesting’ better than buying?
This is a lifestyle decision, best made hand-in-hand with a financial advisor based on your individual circumstances.
Rentvesting is a buzz word for buying a property and then leasing it out to a tenant while you continue to live elsewhere, perhaps paying rent (or living with parents, if that’s your strategy).
It is no better than buying as an owner-occupier, because it depends on what your motivation is. Rentvesting is an option if you have the deposit to buy a home, but not in area you’d personally like to live, and you have had financial advice that property investment is the right move for you.
To avoid paying stamp duty on the property, you have to live in the home for 12 months and you would be wise to factor in a plan B if there are periods where a tenant is not covering the mortgage. Doing your sums is crucial to make sure you can afford the repayments on the mortgage, on top of your other financial obligations, if a worst case scenario arises and you struggle to find a tenant.
Is it a good time to buy right now?
There are historically periods in Australian real estate which economists and property pundits would call a “buyers’ market” or a “sellers’ market”, with peaks and troughs of price growth and slow down. Along the each coast, especially, we appear to have struck a more balanced market that favours the interests of both sides.
This is because vendors have realistic expectations about the price their property will fetch, and with agents reporting fewer buyers in the mix, those buyers have a red hot chance to snag the property they want, against less competition.
However, I do not subscribe to the theory that there is a right time to buy. Buyers’ advocate Cate Bakos tells me that the right time is when you can afford it, and I believe strongly in that.
When is the bubble going to burst? Or has it already?
Nobody in real estate can agree on whether a bubble is real. It’s like arguing over the existence of the Bermuda Triangle, who or will win The Bachelor. Boffins are divided and everyone, from in the workplace to a dinner party, the barista who brews your morning flat white and politicians in Canberra, have a different opinion on this.
Personally, I don’t think a bubble exists or did so in Australia, because a popping bubble suggests a violent price drop – the insinuation of the word “pop” is a collapse – and we have not seen that. Instead, there is evidence of an ease back of prices – a deceleration of that turbo growth we have experienced.
Emily Power is an author, property commentator and editor of Domain magazine. She’s talking all things property on our next Masterclass Online: How to Buy a Home this Thursday 12:30pm AEST. If you’re wanting to invest, buy your first property, or increase your portfolio it’s a must-watch. Premium members can register for FREE to watch Our Masterclass Online webinars.