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Is it the right time to buy yet?

John McGrath
Thursday, March 28, 2019

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In challenging markets, it can be very hard for people to see the opportunities they present.

We know Australian property is a safe and reliable asset class that will always do well if you buy quality homes and investments in desirable locations and hold for the long term.

There will be times when we have buyers’ markets, like we do now in Sydney and Melbourne; and there will be times when we have sellers’ markets, like we did in both cities between 2012-2017.

Every time a boom comes around, we are reminded of the capital growth property can achieve. People kick themselves for not buying five or 10 years ago as they see prices going up and up. Then, the market inevitably turns and people forget that lesson. They huddle amongst the herd where they gain comfort from doing nothing. That’s how people miss opportunities.

You should always buy property for the long term. Generally speaking, I encourage buyers to forget about market timing and focus on personal timing. Simply buy when a great property comes along that is within your budget and then hold it for the long term to catch the next wave or two of major growth. 

But if I had a crystal ball, I’d tell you the best time to buy is either week one of a two or three-year boom or the final week of a downturn. I reckon Sydney and Melbourne are close to their floors and this means there is ripe opportunity for buyers who are willing to go against the crowd.

Granted, this isn’t easy to do.  If you’re looking to buy today, you’ll probably have at least one parent plus a few siblings, friends and colleagues telling you “you’re crazy”.  Some will say the mythical bubble is about to burst, others will tell you that prices are likely to drop further and it’s best to wait.

Problem is, no one can pick the bottom.  Not even those of us with decades of experience in the market. Your best play in Sydney and Melbourne today is to buy a high quality asset, when a really good one becomes available, within your budget at the 10-15% discount available right now. 

How today’s buyers are benefitting in the falling market

·   Prices are 10-15% down, so you’ll pay less than what many other buyers were willing to pay a year ago. (The fact they were willing to pay those prices and the banks were willing to lend on those valuations should give you comfort that prices will go back to those levels again).

·   You’ll have far less competition, with most auctions only attracting one or two bidders.

·   Interest rates remain very low and there is wide speculation of one or two cuts in the near future due to concerns over stalling economic growth and reducing consumption. If you can buy your first property at a time of low interest rates, you have a big advantage as it’s those first five years that are most expensive – when the bulk of your P & I repayments are covering only the interest, with just a little bit paying down the principal.

If we dig down to buyer groups, I’d say first home buyers and upgraders will benefit most from today’s market conditions.

First home buyers who have been saving for a long time and have loan pre-approval (arguably easier for them because mum and dad are often chipping in or going guarantor) have a great opportunity to buy.

In Sydney and Melbourne, these young buyers usually look to apartments for affordability. Right now, they can pick up good quality properties at a great discount with a very manageable mortgage due to low interest rates.

An impending oversupply of new apartments will provide greater choice and there are generous grants and stamp duty discounts in both NSW and Victoria to take advantage of. They’re generous offers and won’t be around forever.

Upgraders who are selling and then buying back into the same type of market can also do very well. If you sell a $1.5m property for 10% less, you are selling at a $150,000 discount to the peak. If you’re buying a $2m property for 10% less, you’re buying at a $200,000 discount.

Buying property is one of the key avenues for wealth creation in our country. It is smart to keep your eye on the market and regularly consider whether current conditions present an opportunity for you to buy, sell or invest. In my view, now is a really good time to consider that proposition.

Published: Thursday, March 28, 2019

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