There is a great deal of speculation surrounding the property market at the present. With talk of rate rise and falling values, many would-be home buyers are questioning whether to buy now or not and asking ‘is property still a good investment?’.
However, while these concerns are real, there honestly has never been a better time to buy a home. Here are the 5 top reasons why property is still a great investment.
#1 Interest Rates are Low
Economists predict that U.S interest rates will rise, and Australia will follow. Nevertheless, Australia has an extremely low rate of inflation and under Reserve Bank targets. So, while the economy is steady, it is also not growing at the expected rate. Therefore, rate rises will be gradual so the economy can cope with this change, which is ideal for property investment. Should you consider fixing your home loan?
#2 High Property Demand
Data suggests that property demand is high and market sentiment is strong. Subsequently, home buyers are displaying a sound level of activity, with developers selling homes. While suggestions that new apartments will rock the market, this will reduce price growth, not market demand.
Moreover, demand in some sectors such as Sydney and Melbourne will be higher, due to continued population growth. Consequently, these capitals have strong property growth values. Other capitals, such as Brisbane and Perth, are weaker but are showing signs of improvement, making these capitals ripe for investment.
Also, data suggests that there is still a housing shortage in Sydney, with demand outstripping supply. But, with fears of an apartment glut, banks have cracked down on development lending, reducing the number of investment projects. Thus, there are less developments and fewer homes on the market, further increasing demand and offering investors better returns.
#3 Bank Funds are Still Available
With a high level of funds, financial institutions are seeking sound ways to invest. Accordingly, financiers still classify residential property as a solid long-term investment, despite development lending restrictions. Therefore, in most cases, banks will finance up to 80% of a property’s purchase price. These same institutions have also increased the number of lending products. As a result, the choice is now profound for home buyers looking to get into the market to buy a long-term investment.
#4 Long-Term Investment
In most instances, as a long-term investment property will make a sound return. Typically, over a 10-year period, a property appreciates in value and, in some cases, can even double. For instance, a home bought for $300,000 sells for $600,000 10-years later, thus making a 7% return per year. Hence, by adding this value to the property’s rental return of 3%, returns are 10% per year.
Of course, returns vary depending on property type and location, and when you entered and exited the market. Hence, following property cycles – buying when the market is low, and selling when its high – offers the most financial gain.
#5 Negative Gearing
Although there have been discussions about changing negative gearing legislation, the government have not made any moves. Short term this means that negative gearing is here to stay. As a consequence, property investors stand to save a great deal on taxes at the end of a financial year.
Overall, if you are looking to buy an investment or your first home, then now is the right time to consider your options. Waiting could mean that it becomes harder to gain financial approval or that costs rise.