2020 will be a year talked about for generations to come. The country, already in severe drought, began with catastrophic bushfires along the eastern states and now we’re more than six months into a global pandemic. With no cure and global economies teetering on the brink, the world can no longer exist in this holding pattern. Where possible, we need to start thinking about and moving forwards with the future.
That future includes investing in residential property.
If you were planning to invest in property in 2020, is it still a good idea? Should you buy now or put your property investment plans on hold?
They may say fortune favours the bold but will being bold make you any better off? Let’s look at some things to consider.
Australia’s current economic climate
There’s no denying Australia is heading towards a recession. Due to our robust economy at the time, we managed to avoid the worst of the 2008 Global Financial Crisis. However, this time we won’t be so lucky.
With July unemployment figures sitting at 7.5%, changes to the JobSeeker and JobKeeper payments imminent and the six-month moratorium on COVID-19 related rental evictions due to end in October, we’re about to feel the pandemic’s true financial impact.
Not only that but the NSW Government has strict physical distancing measures in place for open house inspections and auctions, which may impact a property’s saleability.
But is it all doom and gloom or does this place buyers in a unique market position?
Record low interest rates make property investing in 2020 more attractive
Interest rates remain at historic lows with the Reserve Bank board, which meets on the first Tuesday of every month, voting in early August to keep the official interest rate at 0.25 percent. Reserve Bank Governor Philip Lowe had previously mentioned the possibility of cutting rates to 0.1 percent but for now, rates remained steady at 0.25 percent.
Even more importantly, experts across the board expect interest rates to remain low for many years to come, with or without a COVID-19 vaccination or cure.
Low interest rates buy you some advantages. For a start, it’s the perfect time to shop around. When Yahoo Finance writer Lucy Dean recently spoke to Canstar’s finance expert Steve Mickenbecker about interest rate rises, he noted:
‘We’ve never seen a home loan market like we have now where lenders are so keen to undercut their competitors’ rates.’
Low interest rates mean you can potentially borrow more or have less to repay. Combine that with an expected drop in house prices and you could find yourself in a surprisingly comfortable position, particularly if your employment income remains solid.
Will house prices fall in 2020?
A few months ago, economists were predicting a worst case scenario where house prices would drop anywhere between 20 - 30%. Lately though, experts agree a 10% drop is more likely.
However, not all house prices will be affected. Many experts believe the lower end of the market, being the sub $500,000 properties, won’t be impacted too much, it’s the properties at the higher end of the market that will feel the sting.
This seems to indicate that high priced inner city dwellings, especially in the already overpriced Sydney and Melbourne markets, may struggle to find buyers. However, more reasonably priced properties in the suburbs and regional towns may actually see more ‘business as usual’ real estate activity.
Many real estate agents in regional areas around Australia have actually seen an increase in interest as the world adapts to remote working conditions.
Open house and auction restrictions
Any good real estate agent will wax lyrical about the open house. Nothing will ever match being able to walk through a property and chat with the agent about not just the property but any potential rental side as well.
That was until they couldn’t anymore. The government initially shut down on-site auctions and open houses, then moved to strict social distancing requirements.
Being a resilient mob, real estate agents just upped the ante, so to speak. With the use of technology, open houses have gone virtual. Visit the social media platforms of any agent and you’ll not only find photos, but virtual tours of the property that are almost as good as being there.
These measures have had a few pleasant outcomes. It means generally only serious buyers will attend both open houses and auctions and remote buyers are being given a better buying experience than ever before.
Why are you buying an investment property?
Unless you’ve got plenty of money to spare, buying an investment property is usually a carefully considered, strategic decision. This applies to any year, not just 2020. If you have a reliable income and purchase a property at the right price in the right location then investing in property can still be a sound investment choice, even in times of recession. This is because most property investors tend to buy property for one of two reasons and these reasons still remain valid today.
Take advantage of negative gearing
Negative gearing means investing in a property where the annual expenses exceed the rental income. The point is to make a loss on the investment so a deduction can be claimed against a taxable income.
Positive Gearing or Cash Flow
Buying a property solely as a means of generating a passive income flow. The property itself increasing in value over time is a welcome investment side effect but the regular income is the main draw card here.
Here at Kelly+Partners we have extensive experience and an in-depth understanding of the property market to maximise your tax position.
If you are interested in exploring your options in 2020 we can discuss with you how to get the optimal return on your property investment to put you in control of your finance to meet your long term goals.
At the end of the day
While this year has come with its challenges, overall the Australian property market has remained relatively stable. There are still opportunities out there, particularly in regional areas, for sound investments to be made. This year could be the year that sets you up for the future.
Any advice/information contained in this newsletter is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person or company. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. These articles have been written for general informational purposes only, and are not intended to provide, and should not be relied on for, tax, legal or accounting advice. We encourage you to consult your own tax, legal and accounting advisers before engaging in any transaction. Information in this edition is correct as of the date of publication and is subject to change.
Credit services are provided by Kelly Partners Finance Pty Ltd as an authorised Credit Representative under Australian Credit Licence 38908