To buy or not to buy? An expert guide to timing your property investment

February 2020

Content provided by Defence Housing Australia

Interest rates are at historic lows and property prices have begun to rise. Here, experts have their say on whether it’s a good time to invest.

It’s official: Australian property prices are well and truly rebounding after a two-year slump. According to the CoreLogic Home Value Index, house prices rose in October for the fourth consecutive month, adding 1.2 per cent nationally.

There’s good news for Australians with mortgages, too: interest rates are at historic lows, and most economists predict they will stay low throughout 2020, making mortgages easier to service in the months ahead.

But what does this mean for those looking to enter the investment-property market?

‘It’s good news in some ways, but in other ways it could make things a little bit tougher,’ says CoreLogic research director Tim Lawless.

‘On the plus side, if you’re planning to take out a mortgage on your investment property, making payments is now much easier than it was at the start of the year.’

However, he adds, ‘As you can see from the data, the events of the past few months do mean there’s now some upwards pressure on prices.’

As independent economist Saul Eslake explains, it’s not just the Reserve Bank’s interest-rate cuts that have begun to tempt investors to return to the housing market in recent months.

‘The other key thing that’s happened in the property market is the removal of the uncertainty about the tax treatment of investment property that had been weighing on the market in the lead-up to the Federal Election,’ says Eslake.

‘The Labor Party had been saying since before the 2016 election that they were going to get rid of negative gearing and reduce the capital gains tax discount that applied to property and other types of investment. With opinion polls saying right up until the election that a change of government was likely, investors were pulling back from the market.

‘That uncertainty has now completely gone away because of the election outcome.’

A third factor that has helped stimulate the market is the relaxation of lending rules by the Australian Prudential Regulatory Authority, which has made it easier for prospective buyers to qualify for mortgages.

‘Those three things all together are probably the key reason that we are seeing the housing market recover at the moment,’ says Lawless.

Eslake believes property prices will continue to rise, thanks largely to ongoing low interest rates.

‘It’s not likely [rates] will go up in the months ahead,’ says Eslake. ‘Indeed, it’s more likely that they will come down perhaps once more – not this year [2019] but maybe in the first half of next year. That’s more likely than not.’

Lawless concurs. ‘We aren’t expecting interest rates to rise for at least another couple of years,’ he says. ‘In fact, I think the next move will probably be another cut, around February next year.’

Eslake adds, ‘If you take a three- to five-year view, then you would probably want to factor in the possibility that rates could rise by a percentage point or so from present levels.’

Lawless describes current conditions for investment buyers as a ‘sweet spot’. ‘You’re still buying at prices that are lower than when the market peaked back in 2017, and you can benefit from lower interest rates,’ he says.

But now is the time to act, says Lawless. ‘A bit of urgency has come back into the decision-making process, particularly in cities like Sydney and Melbourne, where prices are rising a lot faster. It won’t be too much longer before we see housing prices reach a new record high, particularly in Melbourne, where values are rising the fastest. But we are now seeing prices rising virtually everywhere, at least across all the capital cities apart from Perth and Darwin.’

Eslake also believes, on balance, that now is a good time to invest in property. ‘Given the interest-rate outlook and given the market does appear to have passed the bottom, at least in the eastern states, it’s not a bad place to put money,’ he says.

However, he believes would-be investors should manage their expectations. ‘If I were buying property, my expectations for capital gain would be more modest than they were a decade ago,’ he says, ‘and I would want to be less highly geared than I might have been a decade ago.’

Disclaimer
This article is provided with help from Defence Housing Australia (DHA). To view investment opportunities available through DHA’s Property Investment Program or find out more about the program, visit dha.gov.au/investing.
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