With so many contradictions in the media about the state of the property market, it can be confusing to filter facts from fears. One day the market is close to collapse. Another day it is flat but showing some positive signs of recovery. New data and statistics are being released every week, and experts scramble to interpret what they mean. Which information is accurate and how much should you rely on it?
What do I think? Long run property capital gains are likely to be 4% to 5% per annum going forward (in line with wage growth) not 8+%. However, I don’t expect 40% drop in prices as some doomsayers suggest. Rental yields should be higher going forward than over the last five years due to continued undersupply of housing in NSW. And interest rates are lower now and likely to remain so for some time to come, making carry cost cheaper for investors.
Unaffordability is a problem for many first-time home buyers. However, the undersupply of housing and significant store wealth and foreign wealth will support middle-class and established suburbs.
Finally, the recent news of the axing of stamp duty exemptions for first time home buyers in NSW for second-hand property may lead to a blip in first-home owner activity this spring but then will lower demand from this segment due to unaffordability. With leverage, property investment returns can still be quite rewarding.
It is of course always wise to do your own homework prior to making major life decisions (property-related or otherwise). However, if you are feeling more confused than ever as to whether you should buy or sell real estate this spring, forget for just a moment about what you have read here or in the media and just focus on answering the following three questions to help you make the right decisions:
1. Are you making a real estate decision based on the market or on your life?
Property investors are typically opportunistic buyers, whereas owner-occupiers usually buy properties based on their lifestyle needs, such as an expanding or downsizing family. If you are hesitant to make a real estate decision, ask yourself what is holding you back from buying or selling? Are you trying to make your decision based on timing the market (which you have no control over) or based on your life and needs?
If you are an investor, perhaps you are making a calculated decision purely based on the market. However, if your life circumstances demand that you make a buying or selling decision this spring, then make the most of whatever market conditions you are faced with. If you are selling one home to buy a larger one, maybe it is a good time to buy when the upper-end market is still weaker. Whatever shortfall may result in selling your property in a flat market, if you buy in the same market, you will more than make up for it on the purchase end. What you want to avoid is selling your property now and buying only later when the maker is stronger already.
2. How will you know when the market has hit the bottom?
The reality is that no one can ever accurately predict when the property market has or will hit the bottom. The only way to know for sure is to look at the data retrospectively, once the market has already made an upward trajectory and then it will be too late. It would be a waste of time and energy to sit on the sidelines to try to pinpoint a particular turn. Chances are you may be wrong with your calculations and would have by then missed out on some good opportunities in the marketplace. If you believe that the property market is most likely to go up in the medium term, focus on buying right and negotiating well, rather than on picking the bottom.
3. What are you in control of?
It is important to understand and differentiate between factors which you are in control of and those which you are not. You are not in control of the global economy or how the EU and USA are performing; and you are not in control of interest rates which are set by the RBA. You are also not in control of the quantity or quality of property stock on the market. However, this does not mean that you cannot be in the driver’s seat when it comes to buying or selling a property.
If you are selling a property, you are always in control of the agent you appoint, the method of sale, the timing for the listing, the marketing budget, etc. Likewise, if you are buying a property, you are in control of picking a solid property (that is not going to underperform), understanding its value, how much you are willing to pay and when you submit the offer or bid at auction.
Keep things in perspective and don’t be paralysed by the things you cannot control. Focus on maximising the outcome of the things which you can control. This means that regardless of whether you are buying or selling a property this spring, you should demand more and negotiate smarter.
About Oliver Stier
Oliver J. Stier is the Director of OH Property Group, a leading Sydney buyers agency. He studied Quantitative Economics and Finance at Cambridge University (UK), University of Toronto (Canada) and Princeton University (USA). In addition to being a licensed real estate agent, Oliver also holds the Chartered Financial Analyst (CFA) designation.