Time To Buy

The property market is in a trough, with prices flattening in many capital cities. So is now the time to add to your investment portfolio? We ask two leading experts.

Conventional wisdom says the great fortunes are made by those who buy and sell on a counter cyclical basis. That is, they buy at the bottom of the market and sell at the top of the market.

With rental properties prices around Australia flat or falling, is now the time to add to your investment portfolio or take the plunge and become an investor?

Market Yet To Bottom

CPM Research Managing Director John Wakefield has seen several property cycles run their course. He says the current downward end of the cycle still has some way to go, with prices likely to continue dropping over the short to medium term.

“My feeling it that there are further declines to be had. We won’t start to see proper flattening until clearance rates start to pick up again. With interest rates continuing at the low level they are at now, the implication is that the level of buyer demand as witnessed in auctions, which is the most immediate measure we have, is still fairly poor. This is met with vendor expectations being still too high, and hence they are setting their reserves above what buyers are willing to pay.

“We will not see a true flattening until clearance rates start to move back to 60%. While the latest Federal Government tax cuts will have a positive effect on the market, they could be a false dawn because they will feed back into the potential for interest rate rises. If that expectation takes hold, that there will be interest rate rises flowing on from these (tax) changes, then that will impact very negatively on the property market.

“There will be some strength and feeling of confidence after those tax cuts, but equally they will give the potential for interest rate rises, which are going to cause far more damage that any $60 in high income earners’ pockets or $6 in low income earners’ pockets. Interest rate rises and expectations for interest rate rises are far more impacting on residential property prices than any other factor.

“So, I don’t think the worst is over. All of the signs are that there is still softness in the market, that softness will perpetuate and that there is little sunshine to be seen on the horizon at the moment.”

Opportunities For Astute Buyers

Jock Bing, Managing director of Portfolio Management Services, agrees that the property market probably hasn’t bottomed but he says there are plenty of good opportunities for astute investors.

“No one should be taking their eyes off the market. There are opportunities out there and it is just a question of recognising them. We have found in the past 12 months that vendors are prepared to meet the market - they are prepared to take about 10% below perceived value they have been expecting.”

“From the investors’ point of view that is great, because this would translate to a year’s (capital) growth. We are buying properties and are achieving that result. But the vacancy rate on the rental market is as low as I have seen it for years - it is below 2%. If we are going to see rental rate increases, that will be good for the market. I am punting on rental returns of about 4.5% before long.”

“So, when do you start to buy? You start to buy when you see opportunities out there and when the arithmetic works. We are at the point where vendors are starting to see that they have doubled their money in recent years but vendors take a long time to realise the party is over and then they don’t want to believe it. Once buyers chink at the confidence of vendors you change the parameters.”

“You do find the market offering opportunities in certain suburbs. When the market does start to soften, there are areas that will soften less and that means the value is there. In all of those places where there have been infrastructure changes, such as a new supermarket, this is going to feed back into (local) values.

Timing, Research And Location The Keys To Investing

If you are considering investing in rental property, it is vital to do your homework first. As the experts above point out, spotting a bargain will take time and effort. Put in the hard yards, however, and chances are your investment will pay off in the medium term.