There is cause for optimism in the current property market despite the COVID effect. inSynergy CEO and Chief Property Investment Advisor Richard Sheppard explains some of the moves that can be made now to set you up for the future.
At the onset of the COVID-19 pandemic, grim predictions of a 30 to 40 per cent decline in housing values were bandied about in the mainstream media. Understandably, this left many Australians feeling unsettled about the property market.
Fast forward 5 months and unsurprisingly, the property pessimists have been proven wrong. In fact, recent CoreLogic Home Value Index results revealed that since March, whilst Melbourne property values (the worst hit capital city) fell 3.5%, the ACT dwelling market actually reached a record high.
So, given the present economic conditions and assuming your employment and financial position is stable, how can you make the best of the current situation?
Use spare equity while maintaining healthy cash reserves and diversified portfolio
Whilst keeping a healthy cash reserve buffer is always optimal, keeping bucket loads of untapped equity sitting in a residential property is without doubt a wasted opportunity. Have your current property/s revalued and if you have 20 per cent or more ‘lazy equity’ available, talk to your property advisor or mortgage broker about how you can tap into this and re-invest.
Sell out of overpriced low yielding markets like Sydney and Melbourne
Whilst the concept of selling your Sydney property may feel uncomfortable, now is not the time to sit in poor performing markets! Property values in Sydney fell by 2.1% over the last quarter and ANZ economists forecast a 13 per cent decline by the second half of 2021. Contrast that with Canberra which has grown by 1.3 per cent over the past ‘COVID’ quarter and is forecast to grow by 70 per cent over the next 7 years. On a $500,000 investment property, that could be a difference in growth of $350,000 or more. In addition, net yields in Canberra are almost double that of Sydney.
Invest in higher yielding best growth markets
The fundamentals are very strong for the medium- to long-term in certain Brisbane, Canberra and Adelaide sub-markets and the risk of COVID-19 pushing these markets backwards is very low.
For a well selected property, yields in these markets are 4.5 per cent to 6 per cent or more, and with investor interest rates as low as 2.84 per cent, investors can be cash-flow positive by about one to three per cent net of costs. So, property values would need to go backwards more than this for you to lose money.
If in doubt, always seek professional advice from an experienced, qualified property investment advisor who can provide personalised guidance about your individual circumstances and arm you with the facts to help you make educated and smart decisions about property and finance.