The market experienced an unexpected spike in demand over a year ago as properties get sold like hotcakes but nowadays, it appears owners are struggling to sell their properties without giving a huge discount.
Aus Property Professional founder and director Lloyd Edge said first-home buyers are at an advantage in the current market conditions.
“On the flip side, if you are wanting to sell your property you may be worried that you have missed your chance and that you will be selling your property for less than what you would have been able to sell for had you sold 12 months ago,” he said.
Mr Edge said there are three reasons why properties are selling for less:
- Interest rate rises
As the Reserve Bank of Australia tries to pacify the pressures of rising inflation, property markets experienced a slowdown.
Mr Edge said this flow on effect of interest rate rises to the property market is a direct correlation with property buyers borrowing capacity.
“When the interest rates rise, the banks are willing to lend less to ensure that borrowers are able to pay back their loans,” he said.
“With a lower borrowing capacity, some buyers are not able to afford the same properties they could 12 months ago as well as some buyers being priced out of the market altogether if their pre-approved amount is too low to purchase, particularly if they are looking to buy in one of the capital cities.”
- Inflation and cost of living
The surge in inflation is putting pressure on household budgets, which results in buyers deciding to wait it out until their financial conditions improve.
“When buyers exit the property market, there is less competition in the markets and property prices start to plateau and properties stay on the market for longer,” Mr Edge said.
- Supply and demand
Prices are ultimately influenced by supply and demand. Given the less demand from buyers as they take a wait-and-see approach, supply increase, which leads to price declines.
“On the supply side, there is more supply entering the market as construction has resumed post pandemic when it was placed on hold or there were many restrictions due to workers required to isolate,” Mr Edge said.
Projects that were commenced before and during the pandemic are already in the market.
Mr Edge said the shortage in materials and building supplies is a major concern.
“Properties that have been renovated or built may have cost more than what their sales price would be on the market today,” he said.
Should investors be worried?
Mr Edge said new investors should not feel any pressure amid the slowdown in the market.
“Property investing is a long-term game, and we are expecting for interest rates to stabilise mid 2023 with some potential drops towards the end of 2023,” he said.
“When you are buying a property as an investment, the due diligence performed will determine whether it is expected to work for your portfolio as a whole and to achieve your investment goals over the long term.”
Mr Edge said the ideal strategy, especially for those growing their portfolio, is to buy as prices are going down.
“The current markets also come with a warning — to not sit on the sidelines! If you are choosing to sit and wait for the bottom of the market to happen before you buy your next property, then you we have news for you,” he said.
“Realistically, no one will know when the bottom of the market will be, and this is because you don’t know you’ve reached the bottom of the market until the market starts rising again and by that time you will be too late.”
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