Is now the right time to invest in property?

Australia is currently facing its first recession in decades off the back of the Coronavirus pandemic, which makes the prospect of buying an investment property feel more uncertain than before.

Many Australian investors may be wondering if the best time to buy is now or if they should hold out? However, there are a few key factors to keep in mind when making this decision.

1. Property prices are more affordable

One piece of good news for property investors is that the market is currently more affordable, particularly in big cities like Sydney and Melbourne, than it’s been in a long time.

According to the latest CoreLogic figures for July, nationally we have seen a decrease in property prices over the last quarter of -1.6 per cent. Melbourne experienced the biggest quarterly drop of -3.2 per cent, followed by Perth at -2.2 per cent and Sydney at -2.1 per cent. Annually, prices have still nationally seen growth, but that factors in pre-pandemic conditions.

Further, with the number of households deferring repayments with mortgage holidays, we are less likely to see the kinds of defaults that undermined the American housing market in the 2008 Global Financial Crisis.

Investors may be able to take advantage of these lower prices in a more stable housing market and snatch up a bargain or two. Then, when prices eventually stabilise and grow again, they may see some serious returns.

2. Vacancy rates are fluctuating

While property prices have been becoming more affordable, vacancy rates have been on shaky ground. The latest SQM Research data shows that the national vacancy rate rose between February and April this year, timing with the initial outbreak of COVID-19.

In February, the vacancy rate was 2 per cent and then in April, this jumped to 2.6 per cent. However, as regulations began easing across the nation, the vacancy rate stabilised by falling back to 2.1 per cent in July.

Given the serious lockdown regulations and worrying number of COVID-19 cases in Melbourne, vacancy rates have started to climb again in this capital city. Between June and July, rates increased by 10 basis points. Comparatively, Sydney has seen continued decreasing to the vacancy rate since May this year, at the peak of its restrictions.

With the growing number of COVID-19 cases nationally, we may see more fluctuations in vacancy rates for the months to come. Would-be buyers should be cautious to keep this in mind when looking for their next investment property.

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3. Home loans are dirt cheap

The Reserve Bank of Australia has held the cash rate at 0.25 per cent since its emergency cut in March this year. This means there are only a handful of basis points separating the cash rate from zero, or even negative rates.

Currently, home loan rates are at historically low levels. Low-rate home loans paired with decreasing property prices may result in a perfect breeding ground for investors to snatch up bargain home loans at rock-bottom prices.

Reduce Home Loans is currently offering investors variables rates from as low as 2.69 per cent, and fixed rates from as low as 2.49 per cent. Long-term investors can agree that these once-in-a-lifetime rates are worth taking notice of.

Should you buy now?

Timing is everything when it comes to deciding whether to buy an investment property. Housing prices in a period of greater affordability, but vacancy rates fluctuating, there are a few good reasons why investors may want to buy now, but also why they could wait and see.

However, mortgage rates have been consistently decreasing since before the pandemic hit. That means that locking in a low-rate mortgage now could see you come out on top further down the line when rates rise again.

Any statement/s are general in nature and do not take into account your financial personal situation, objectives or needs. You should consider whether any statement/s is suitable for you and your personal circumstances. Before making any financial decision, consider your circumstances and the product disclosure statement.

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