There are two types of emotions when it comes to property investment one being “greed” and the other “fear”. What has surprised me the most in a 16 year career is that when there is a panic and emotions are in fear mode the market goes down with 80% of the herd not buying and only 20% of people acting and taking advantage of the reduced prices.
As a property investor, I have purchased numerous properties over the years when nobody else was. The benefit of buying when no other buyers are is you’re getting a discount and not paying a premium. Generally I’ve found when the market swings back and starts rising again the 80% sitting on the fence all start buying again and prices head through the roof resulting in premium results for sellers and gains for buyers who bought when things were down.
Warren Buffett the richest investor in the world lives by the quote “be fearful when others are greedy and greedy when others are fearful”. Warren Buffett is a stocks man but if he was into property I’d suspect he’d be out there looking for good deals at the moment.
We have just gone through a royal commission and now there are the 76 recommendations Hayne has made that the government is going to support. The next hurdle we face is the election where Bill Shorten is favoured to win. He has been touting at removing negative gearing from established properties and lowering the capital gains discount which could have a further negative affect on the property market.
I find with investing in anything if people have knowledge of rule changes potentially being passed it is usually already priced in to the market, however there is still no guarantee that Bill Shorten will win the election nor will he go ahead with these changes or get the bills passed through parliament, not to mention any purchases before the changes will be grandfathered in.
So where do the better opportunities lie at the moment?
From what I can see happening in the market at the moment the tightening of credit has had a stronger negative affect on two types of properties;
- Higher end properties have been hit hard due to the tightening of credit, its common sense to see that under more regulated lending conditions that it is harder to get a bigger loan due to serviceability criteria’s.
This poses an excellent opportunity to upgrade your principle place of residence at a reasonable upgrade cost should you be in a position to do so. When it was a booming market it was harder to do this without taking on a massive mortgage as the gap was a lot larger.
2. Development sites have also been hugely affected in price due to the banks not keen to lend for speculation at the moment. This has caused problems for a lot of builders that can’t borrow money to buy anymore sites not to mention a lot of builders are dumping projects at the moment because they are unable to obtain funding for construction.
This poses another excellent opportunity to buy land value properties at reasonable prices, whether you’re looking to either land bank and sell later on or develop. If you’re buying development sites now you can negative gear them and be grandfathered in before Bill Shorten potentially changing the rules.
What should I do and what are you doing personally?
I personally think there is nothing wrong with getting a pre-approval done to see what you can potentially borrow. Once you know whether you have any capacity to lend then start researching the market to see what is the best value for your money. If you see a really good deal you could always pull the trigger.
As an agent I make good money when the market is booming by selling property for clients, when the market is on a decline of course I’ll still survive but on a more positive note it presents an opportunity for me to buy investments. I don’t usually buy when the market is really strong, I sell for clients and if I need to sell any of my investments I sell them in a strong market environment.
For me now the markets is a little tougher which means it’s time to start looking at buying for myself, however I will say our inspection numbers have increased this year so I believe a lot of people are doing the same as I currently am. (Getting Ready) Remember It’s very hard to time the bottom of the market, my last personal acquisitions were in 2011 and 2014 which was just before and just after the bottom of the market in 2012 but I still managed to do very well with those properties.
Is it different this time is property doomed?
There is two things you really need in life to survive and that is food and shelter, so I believe that property will always have a relatively healthy market in the long term.
It’s not a bad thing that the market has corrected because with the banks being reckless in recent years with lending practises it created an unsustainable bubble that’s now burst. With this market reset and better regulation we should see steady growth in the future once it bottoms out and improves. Banks are the ones that cause booms and busts due to greed.
In my eyes property will always be supported by government powers as it is a major driver to the world’s economy, let’s see how property helps the world go round;
-Building materials are made from raw materials which in turn supports mining.
-New homes being built supports the building and construction industry and its workers.
-When new homes are purchased people generally go out and buy new furniture which supports the retail industry and its workers.
-Banks make money lending out for new homes and businesses’ which supports the finance and banking industry and its workers.
-Local Councils and Government make money from rates and stamp duty and they employ people.
-Insurance companies make money from insurance premiums on housing and they employ people.
-People need shelter and if they don’t own a home, then they will rent so the investor generates an income.
-Property owners sometimes renovate or maintain their property so maintenance people, air-conditioner installers, pool companies all make money through the power of real estate.
This is why there is also strong incentives given to first home buyers coming into the market, to keep the property wheel turning.
I hear all the time that property is doomed in tough times and this time it will be different, however I’ll say this “I’ll clock up 17 years in real estate later this year and in that time I have seen 12 good years and 5 bad”. Like the stock market overtime the property market goes up, yes it goes down and sideways but more often then not up, so overtime it grows.
Other factors to consider why property goes up overtime;
Dollar de-valuation “each year the dollar is worth less mainly due to printed money”
Supply and Demand
All these things have an affect on the property market and it’s pricing and it’s usually in an upward manor over time.
Im not here to provide investment advice and this should not be treated as advice, investment carries risk and you should consult your own financial experts before making any financial decisions, the above idea’s are just that and are of my own personal views only.
Should however you decide to seize this opportunity and buy real estate in the near future while prices are fairer, I’ll see you out there in the marketplace and remember these good buying opportunities normally don’t last long.
If you’re not going to buy while the markets having a sale you could always wait for it to go back up and pay more or look to invest in something like Bitcoin. (Just kidding)
Feel free to contact me if I can assist with any of your real estate needs!