After some two years of unprecedented property price growth, the steam in the property market has begun to evaporate.
That said, each market appears to have a mind of its own, with markets within markets all operating at different speeds. CoreLogic’s Daily Home Value Index to August 29 revealed Sydney, Melbourne and Brisbane continue to experience property price corrections from the June quarter, down 5.9%, 3.8% and 2.4% respectively.
Meanwhile, Adelaide and Perth are moving in the opposite direction, up 1.8% and 0.4%. In monthly terms, CoreLogic’s Capital City index for August recorded an overall property price fall of 1.44% - marking the largest monthly decline in 39 years.
Tome Avelovski, Director of buyer’s agency Ready Set Buy, said the growth seen over the past two years is unprecedented with some suburbs in major cities reporting over 50% growth, which is unsustainable.
“It’s only natural to see a softening in these markets. Price corrections, not crashes, are just a normal part of a property cycle – we’ve seen it time and time again and we’ll continue to see it in the future,” Mr Avelovski told Your Investment Property Magazine.
“We’re already starting to see fixed-term rates being cut by the banks including Commonwealth Bank, Westpac, Macquarie and Suncorp with the anticipation that the RBA will begin to cut the cash rate as early as mid-late 2023.
“I believe we’ll continue to see a softening in some markets for another six to 12 months but then it’ll pick up momentum towards the end of 2023.”
Domain Chief Economist Dr Nicola Powell said the speed and scale at which prices soften depends on many factors, including inflation and interest rate rises.
“It is important for Australians to remember that the ups and downs of prices are illustrative of a healthy property market – just like the expansion and contraction of an economy,” Dr Powell said.
“If we view property as a longer-term investment, timing the market becomes less important.”
Founder of Rethink Investing, Scott O’Neill echoes this belief, noting there is no ‘perfect time’ for property investment.
“Once rates stabilise there will be a boost in confidence from investors,” Mr O’Neill told Your Investment Property Magazine.
“That will spell the next surge in demand as confidence will rise from that point. Right now confidence levels are the lowest they have been since March 2020, and just look what happened to property prices last time confidence was that low.”
Taking advantage of cool markets
Mr Avelovski said there has been little time to stop and smell the roses with next-to-no slow down in investor activity despite the cooling market.
“If anything, we’re busier than ever at the moment. Investors are looking to take advantage of the cooling markets. We’re still seeing many properties go under offer within 24-48 hours of being listed, multiple offers being received and selling well above the asking prices,” Mr Avelovski said.
“The savvy investors are buying now - before property prices begin to rise, before the markets are flooded with buyers again and competition is fierce and before everything is flying off-the-shelf.”
Your Investment Property’s latest sentiment survey revealed 62% of property investors indicated they are looking to purchase another investment property despite the cooling market, with 38% looking to do so in the next six to 12 months.
Mr Avelovski said when buying property in a heated market, there’s less chance of negotiating a lower price or better terms with plenty of FOMO kicking in, as buyers overpay to secure a deal.
“In a cooling market, buyers have more control,” he said.
“This allows investors to not only negotiate a better price and terms, but it also gives them more time to complete their due diligence and avoid costly mistakes being made.
“A perfect example of this is a property I purchased in regional QLD for one of my investor clients. The property was listed on the market for 40 days with an asking price of $385,000.
“With no solid offers received and interest rates rising, the vendor started to panic and decided to reduce the asking price down to $350,000. I was able to secure the property for $335,000 - there’s no chance this would’ve happened three to six months ago.”
Safeguarding in times of property downturn
To safeguard property investment, Mr Avelovski believes investors should scrap the notion of simply focusing on capital cities or their hometowns, and instead consider branching out and diversifying in major regional hubs that are still affordable and have plenty of room for growth.
“There’s no point buying in capital city markets that have reached their peak or are declining,” he said.
“These markets usually have lower rental yields too, ranging from 2-3%, which means investors will need to contribute a lot of their own income towards the monthly loan repayments and outgoings.
“We’re still buying in markets that are returning 5-6% rental yields and sometimes even up to 7-8% for dual income properties.”
Mr Avelovski says another strategy investors can utilise is to look for ways to add value to a property.
“This can be through a renovation, granny flat, subdivision or development,” he said.
“This way, they’re not just relying on the market performing or waiting for prices to go up, but they’re actually taking control of their asset.
“This gives them the opportunity to increase the value of their property much faster, regardless of whether the market is rising, flatlining or declining. They can also increase their cash flow using these strategies, offsetting any increases in the interest rates.”
Tome’s top tips to purchase in a cooling market
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Before searching, speak to a mortgage broker. This ensures your finance pre-approval is in place with a conveyancer lined up to assist you with the contract. This will put you in a good position to be able to exchange contracts quickly.
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Research an area and the market. Some agents and vendors are still trying to achieve prices from 3-6 months ago in markets that are declining. The last thing you want to do is overpay for a property - this will slow you down in building up your portfolio, putting you years behind achieving your goals.
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Place a deadline on an offer. This gives you leverage and puts pressure on the vendor to make a decision quickly. If you simply submit an offer and wait patiently for a response, the agent may use this against you to push other buyers’ offers higher.
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Don’t buckle under pressure. Lastly, don’t fall for selling agent’s tactics or buckle under pressure - crunch the numbers, set your limit and stick to it!
Shifting investment mindset
Speaking on his own investment property journey, Mr Avelovski said his main focus has shifted to renovations (pictured below).
“At the time my budget was quite tight, but I knew I wanted to purchase a freestanding house in the Sutherland Shire for my next investment,” he said.
“So, I decided the only way this was going to happen was to purchase an older property and transform it into something amazing.”
The Sutherland Shire region was an area Mr Avelovski had been watching for years, with his individual research unveiling a suburb with a median house price tag of $1.1 million, set to gentrify quickly following the sale of government properties.
“The property was listed with an auction price guide of $730k - $750k, however, I was able to secure the property for $700k prior to auction - $400k below the median house price.
“As my wife and I were doing most of the work ourselves bar plumbing and electrical, it took us around 12 months to complete. We then ordered another valuation from the bank which came back at $1.3 million – a whopping $400k+ gains over 18 months.”
Mr Avelovski said by adding value, the need to worry about what the markets are doing is nonexistent as it provides greater control in the ability of a property to increase value.
“For investors that are quite handy, there are a lot of DIY means to save on costs such as demo work, painting, installing floating floorboards, or even installing an IKEA kitchen.
“Painting the interior of a house themselves can save close to $10,000 alone which adds to their equity or profits.
“Our renovation projects have not only given us the opportunity to continue building our property portfolio and start our own buyer’s agency to help others around us achieve the same but it’s also given us the financial freedom to start a family, where my wife can spend a lot more time with our little boy and not have to worry about returning to work for a few years.”
