The spring season for property has been successful across most of Australia, with solid gains and high auction clearance rates in Sydney and Melbourne.
Some economists have looked at the property gains of 5.2 per cent in the September quarter in Sydney and 5 per cent in Melbourne, and started using the term ‘housing bubble’.
Please don’t use this as a reason to avoid property. The current strength of the market is healthy – people are investing in property again.
The latest RP Data-Rismark property price indices in the capital cities hardly shows a runaway train. It’s more of a market comeback: it shows Australia’s capital cities’ property values dropping 7.4 per cent from October 2010 to May 2012, only to resurge 8.7 per cent from June 2012 to September 2013.
So, it’s a good time to buy property so long as the financial parameters suit you personally. If you have a sufficient deposit and you have reliable income to service your mortgage repayments, then property is a good buy.
Why? Firstly, we can not remember a time when interest rates have been this low. The official rate of 2.50 per cent means variable rate mortgage as low as 4.7 per cent, and 3-year fixed rate mortgages for 4.9 per cent. This is as low as most borrowers will ever see.
Secondly, your own circumstances are always more important than market statistics. If you have consistent income and a good deposit, then you should do an affordability exercise from your own perspective.
Take a look at a tool such as the Yellow Brick Road Loan Repayment Calculator: if you borrow $400,000 at 5 per cent interest over 30 years, to buy a unit/townhouse then this is your comparison: it will cost you around $575 per week in mortgage repayments. If you’ve been used to paying $500 per week in rent, then there’s a slight difference, but you must also factor capital gain into the picture. If you have a $500,000 apartment, appreciating at 4 per cent per year, then the property is also earning you around $385 per week. And you don’t pay rent but you do have rates, insurances, strata fees, and maintenance costs etc.
Thirdly, a genuine appraisal of property should be made in 10-year windows, which smoothes out the peaks and troughs. In 2010, the Russell Investments conducted a study for the ASX and found that residential property over 2 years had returned 7.7 per cent pa. to those in the highest marginal tax bracket, and 9.2 per cent to the lowest tax bracket. They concluded that residential property was the best investment over 10 years.
With a resurgent property market and historically low interest rates, we think this is a great time to leap into the property market.
Grab paper and pen, and then use a loan calculator to find how much you can borrow, or how much you can save by refinancing.
Be bothered, be informed, take action.
Author: Mark Bouris, Executive Chairman – Yellow Brick Road