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5 Reasons Why you should be patient when Investing in Property

Posted by: Glenn Sharp on

Since being back from Christmas Break (which seems like an eternity ago now), I have been asked several times by clients and friends about buying an investment property and whether now is the “right time” to buy.

I cannot remember a time when my response to this question hasn’t been that there is never the “perfect” time to buy. If you are buying for the long term, and investing (not gambling on short term rises) then buy when you are ready. By this I mean that in 10 or 15 years’ time you will have invested for sufficiently long enough to have ridden any downturns in prices, recessions and also will have paid down a large chunk of bank debt (assuming you haven’t fallen for the trap of Interest Only Loans). If you are trying to time the market and make a short term gain then I think this is a risky strategy.

At present there are several uncertainties in the market place that make me feel like it is a good time to be patient. Here are my 5 reasons why I think investing in property can wait:

  1. The Royal Commission into the banking sector has made borrowing money a lot more difficult. As a result a lot of buyers who would normally qualify for loans on property purchases are being rejected. The longer term effects of this are that there are less qualified buyers in the market and therefore pressure on Vendors to accept lower prices for their property
  2. The government have increased scrutiny on foreign investors in real estate. This has lead to fewer overseas buyers and particularly in Melbourne and Sydney a reduction in prices.
  3. There is going to be a Federal election in 2019. Several of the opposition proposed policies will have a major impact on the property market and the economy as a whole. If Labour wins office they are proposing to eliminate Negative Gearing on investment properties. What this means is that the current investors who rely on Negative Gearing to afford their investment properties may be forced to sell one or several of their properties in order to survive. Selling into a market with fewer buyers due to point no 1 above means further downward pressure on prices.
  4. If negative gearing is abolished, investors who currently purchase new property will have no incentive to do so, and as a result the building of new properties will slow. Investors considering property who need to borrow significantly will no longer invest if they are relying on a negative gearing benefit to buy. Some economists estimate this will cause a reduction of approximately 40% of new houses built. This type of reduction in house building has the capacity to cause a recession and therefore further price reductions on property.
  5. If negative gearing is abolished, current investors will have no choice but to increase rents to cover the shortfall currently being covered by tax benefits. This will have a major impact on the economy, given it will reduce the disposable income of those paying rent.

In conclusion, property investment has been shown to be a great investment in the long term, especially as part of a balanced approach to investment. It should continue to be a part of any sensible, balanced investor’s portfolio. However, given the above points I believe patience over the next 12 months is going to be crucial for long term benefits to the investor. Do your homework, be patient and wait for the right opportunity to arise.

Please note the above is not advice that should be relied upon solely in making investment decisions. If you are considering investing, please contact this office for advice that is specific to your circumstances.

Sharp Accounting is a local accounting firm in Ballarat. Sharp Accounting nurture business growth by adding value through collaboration and shared knowledge.

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