There's a well-known saying in property investment - "The best time to buy an investment property was yesterday. The second best time is today". Experienced and would-be investors alike know that the sooner they invest in property the sooner and more significant the gains can become. However, often the timing may not seem perfect and the investment journey can be delayed.
In this post we take a look at 3 reasons why now really could be the best time to buy an investment property.
Appreciating the long-term benefits of buying and holding investment property, it is first interesting to reflect on how many rental properties Australian property investors typically have.
How Many Rental Properties Do Australian Investors Have?
According to data from the ATO, there are 2.2 million landlords in Australia and 90% of those investors have just one or two investment properties.
Some investors feel that securing one investment property provides an asset which can be sold in the lead-up to retirement, providing a "nest egg" for the future. As the above summary indicates, relatively few investors consider their ability to accumulate a larger portfolio, and live from ongoing rental income in retirement rather than the finite proceeds of a single investment property sale.
With this in mind, we consider 3 reasons why now could be the ideal time to buy an (additional) investment property.
1. Home Loan Interest Rates Are At Record Lows
On 4th June 2019 the Reserve Bank of Australia (RBA) lowered the cash rate by 25 basis points to 1.25% to support employment growth and provide greater confidence that inflation will be consistent with the medium-term target. This was a significant change, being the first reduction to the rate after almost three years of stability at 1.50%.
Further to this, on 2nd July 2019 the RBA dropped the rate further to a record low of 1%. What's more, the expectation is that the rate may drop to 0.75% or even 0.50% within the next year, as shown in the graph below (source: Domain.com.au, RBA, ASX).
According to Money as at June 2019, on average, variable home loan rates were at a historic low of 4.06%.
Competition among lenders is fierce, and not all institutions are passing on the rate cuts in full. To see how your lender compares to others in terms of their advertised variable rate and the degree to which the RBA's rate cuts have been passed on, see this handy Rate Tracker from RateCity.
2. Banks Are Relaxing Lending Criteria
On 21st May 2019, the Australian Prudential Regulation Authority (APRA) proposed scrapping a rule which has meant all new mortgage customers are assessed on their ability to manage repayments based on a 7.25% interest rate.
As previously mentioned, the average variable home loan rate is currently closer to 4.00%, and has not increased in 3 years. Regardless, mortgage customers have been being assessed on their ability to make repayments on a 7.25% interest rate (the equivalent of a rate 13 consecutive rate rises higher than the current reality!).
The interest rate "floor" was introduced in late 2014 in an attempt to contain soaring house prices and surging housing investor loan growth, and required lenders to assess prospective borrowers against the higher of either an interest rate of 7%, or a 2% "buffer" over the loan's actual interest rate.
APRA proposed removing the guidance that banks use an interest rate floor of 7%, saying it would allow banks to set their own minimum assessment rates instead.
As an example cited in the Sydney Morning Herald, for a couple with two children with a household income of $150,000 a year, the change could increase the maximum amount a bank would lend them by $67,000, to $903,000. That is based on a bank using an assessment rate of 6.5%, instead of 7.25% currently.
Modelling of the potential impact of the combined RBA rate cut and APRA lending criteria changes are summarised in the below table, courtesy of Your Mortgage.
3. No Changes To Negative Gearing Or Capital Gains Tax
Of significant concern among property investors in the lead-up to the last federal election were Labor's plans to reform negative gearing and capital gains tax arrangements, with Labor proposing they would:
Given the result of the election, Labor's proposed changes are off the table and there is a much greater sense of stability for those considering negative gearing as a means of obtaining their next investment property.
Discounted Property Management Fees For Multiple-Property Investors
We offer a discounted property management rate to investors entrusting us with the management of multiple investment properties.
If you are seeking a rental appraisal on a prospective or recent investment property purchase, you'd like to take advantage of our discounted rate for management of multiple investment properties in Newcastle and Lake Macquarie, or you just want to experience a refreshing and transparent property management service, we'd love to hear from you.
Carnelian Property Management Newcastle NSW
We are a family-owned and run Newcastle real estate agent offering expert property management across Newcastle and Lake Macquarie.