Should I be buying property in the current market?
Property prices have dropped quite a bit over the last 12 months. Now, amid talk of a retail recession, many people are asking, “Should I be buying property in the current market?”
According to Nathan Birch of Binvested, the short answer is yes.
The long answer? Read on to find out.
The media has its own interests to protect.
When it comes to educating yourself about the market, listening to idiots at sunrise is not the best strategy, says Nathan.
In fact, if you follow media reports about the market you will always be behind. This is because the media reports on things after they have happened, instead of preparing you for what lays ahead.
A perfect example of this is the recession that is well underway – but has only just started getting news coverage.
“A lot of people think we are heading into the recession,” says Nathan.
“But they are late for the party – they were already late two years ago.”
If you want to take advantage of opportunities as they present themselves, you need to know what is happening in the present market with an eye to the future – the news doesn’t really help you with that.
The other thing about the media is that there is always vested interest at work. Some of the biggest advertisers that fund newspapers and other outlets are involved in real estate and development. It’s the same when it comes to the retail economy. Media outlets have to be careful about what they put out there in case they lose the support of major sponsors.
Will prices drop more?
Some people are too scared to buy property at the moment in case prices drop even further, but Nathan believes now is the perfect time to buy up.
For those who think it will get worse – it’s bad already, he says.
“Some areas are 20-30% from their height.”
He says it is important to look at why this occurred.
“Prices have only gone down because there is not enough liquidity in the market.”
“Lending got tighter, which had a flow on effect,” he says.
“This caused a recession in the retail economy.”
Since this could be detrimental to the whole economy as we know it, policy makers are now under pressure to stop things getting worse.
What will the next phase look like?
Those in charge are already in the process of setting up stimulus. Rates have been lowered and are set to drop again soon.
Other measures likely to occur include quantitative easing, lower taxes, rebates and easier lending.
Once these things start to flow through the marketplace, property prices and consumer spending will start to rise again.
But when this happens, it will be too late for those who want to build a property portfolio.
We have a small window of opportunity right now.
“If someone wanted to build a property portfolio today, they would need to get started straight away,” says Nathan.
If they just wanted to buy one property it wouldn’t matter as much. They would have the next 12 to 24 months to secure a deal.
But, for those who want to buy ten or more properties, 24 months is a pretty small window of opportunity.
And the opportunities are huge at the moment.
“I love this market,” says Nathan.
“I have been waiting ten years for this market to occur.”
At the moment, he says, there are some properties selling for 30% less than they were two years ago. Chances are, they will be selling for 30% more in a couple of years’ time, so now is the perfect opportunity to buy them when they are on sale.
Things are already starting to pick up.
Nathan says there has been some increased activity in the market recently.
“We’ve already seen signs of improvement,” he says.
“I’ve heard reports from real estate agents and developers whose sales have gone back to pre-crisis times.”
One example is a land developer who had been averaging six sales per month over the last year and a half – until the first two weeks in August when he completed 28 sales.
Not only was this amount a huge increase, it was even more than the 15-20 sales per month he was averaging during the peak.
But, what does this mean for the market?
“Activity levels have severely increased, but I don’t think that is a sign that prices are going to double any time soon,” says Nathan.
“I think that it will limit the stock and thus the availability of opportunities out there in the marketplace.”
“And therefore, over a period of the next 12-24 months, it will become easier for people to borrow.”
Rates will get pushed down further, making it cheaper for people to hold assets.
Nathan says that he is very excited about this market. While it is a poor time to sell, it is a great time to buy – which is exactly what he has been doing.
Tips for buying property in the current market:
- Buy below market value – if prices wind back 20% like they have recently, you will be better positioned to withstand it.
- Make sure there is an upside for capital growth – this will ensure you are in a good position when the market picks up again.
- Make sure the rent covers all of the property’s expenses – this will protect you in the event you lose your job.