Is Property Still Cooling?

There has been a lot of talk recently about "the property market" cooling off. There are forecasts of no growth, minimal growth and price declines for months to come. As any educated property buyer knows, there is no such thing as one property market anyway. There are markets within markets and every one of them behaves differently, even within a given suburb in most cases! Usually with economic headwinds, investors and home buyers tend to pull back and the economy gets a little sluggish. Coupled with plenty of people starting to feel mortgage pain in the coming months and an unsettled global economic sentiment, one could be excused for thinking the world is going to come crashing down if you pay attention to mainstream media.

However, although prices have defintely dropped, we are seeing a surge in demand on the ground like we haven't seen in a while. Buyer demand is sky high and our experience with both enquiry for our services and the numbers at open homes reflects this. Price drops are mainly a function of borrowing capacity right now, but with low stock levels and a surging migrant population, there is inherent price support due to demand for property that the media isn't reporting. Whilst this could change in the coming months as people on fixed rates default back to variable and stock levels likely increase, at the moment there is definitely an underlying and unexpected strength in the market. The rate cycle will soon end, confidence will return and we believe the bottom isn't too far away, if we're not there already.

Downturns and flat periods are all a normal part of economic cycles which is actually a good thing. We can't simply have unrestrained perpetual property growth as the reality is that incomes and productivity would never keep up and we would then almost certainly enter the proverbial "bubble" territory. Contrary to popular belief, almost all property markets have cyclical price movements, that is, periods of growth followed by price stability and/or declines, followed by further growth. Although some markets do experience somewhat linear growth, most do not and it's important to realise this for a couple of reasons.

For the property investor, it demonstrates why diversification is important. When you have multiple properties in different locations, you are (hopefully) always experiencing some growth somewhere. This can be beneficial if you are planning to continue to grow your portfolio and will require the equity, and just generally by removing risk.

Secondly, if you experience little to no growth for a period of time and don't realise this is actually normal, you are probably going to think you have bought a dud and sell it, possibly missing out on some significant future growth. I can't imagine how some people felt in Sydney when they'd sold their property in mid 2013 after experiencing essentially no price movement in the previous eight years and thought their money might be better placed elsewhere. The most successful businesses have weathered many economic storms, have been through many downturns, and have ridden the wave of upturns.

A successful business is successful because they are able to adapt and sometimes anticipate problems both within and outside of their control and make the right decisions to ensure they come out the other side. Your property portfolio is no different. In essence, it is also a business. You should always have spare cash reserves, be mindful of future vacancy or interest rate rises, project future maintenance requirements (such as the replacement of hot water systems, dishwasher or other capital items) and plan for a number of contingencies that are both within and outside of your control. Like a successful business, a successful property investor also adapts to a changing environment.

Your personal circumstances might change too, for example, getting married, having children, changing jobs or moving. This might require a tweak of not only your ongoing strategy, but also the day to day management of your asset(s). If legislation does ever change with respect to negative gearing or otherwise (we are seeing unforecast changes to super right now, so no one knows what could be next), you should also have a back up plan to enable you to adapt and ensure you're not going to be too exposed.

This could involve refinancing your loan, increasing savings funds into your offset account, having your property manager complete a rent review, reviewing your insurance or even finally obtaining that depreciation schedule you've been meaning to get and applying to have an ITWV completed. In all honesty, these are things you should be doing on a semi-regular basis anyway to ensure your portfolio is optimised at all times, but at the very least it's a good idea to review them once a year.

There are many things you can do to "batten down the hatches" and/or optimise your portfolio if you think you want to for some added comfort. Is it time to do so? I would suggest there are always plenty of opportunities for those willing to put the time, effort and resources into devising and maintaining an investment plan. In either case, it's imperative that you obtain the right advice from your mortage broker, accountant, buyer's agent and a Qualified Property Investment Adviser. Always be mindful of possible eventualities before they arise.

I might add that if you are also savvy enough, downturns or periods of no growth can actually presents extremely good opportunities for you to continue to grow your portfolio or upgrade your home if you are prepared! If you are moving from a cheaper property to a more expensive property, the recent loss in value of your smaller property (in absolute dollar amounts, not percentages) will actually be less than the loss of value of the property you are wanting to buy. This means that mathematically it is better to upgrade your home in a declining market!

Contact MyPropertyPro for all your property buying needs. We'd love to chat!