Investing in property can be a daunting task, maybe more so given the events of the last year. So should you look at investing this year or is it better to hold off? We investigate and look at what strategies you can implement if you want to start your property investment journey.
What is happening in the property market?
The property market in Australia has started 2021 with a bang, the likes of which we have rarely seen before. The latest data from CoreLogic revealed property prices rose 2.8% in March, the fastest rate of growth in 32 years. Sydney led the way, with values spiking 3.7% to be 6.7% higher compared to the first quarter of 2021, with every capital city and ‘rest-of-state' region recording a rise in values. Housing values in regional areas were 11.4% higher over the past year and have outperformed the capitals, however, capital city values are now 4.8% higher on an annual basis.
Much of the growth in house prices is due to demand far outstripping supply. National total listing numbers showed advertised stock levels were 25.5% below the five-year average in March. The auction market has been a frenzy to start the year, with the second week of March recording the busiest week for auctions since the end of March 2018. Sydney’s final auction clearance rate has held above 80% for the last week.
Economists expect the rate of growth in the housing market to slow but prices to continue their upward trajectory. Commonwealth Bank economists forecast values will rise by 8% in 2021, while Westpac economists forecast a 10% spike.
With talk of a housing bubble and affordability concerns rife, attention has turned to whether the brakes will be put on the market. The Reserve Bank has said it is watching the market closely but isn’t responsible for house prices. The Australian Prudential Regulation Authority (APRA) is being tipped by many to step in, as they did in 2015 and 2017, to put restrictions on investors and what Loan to Value Ratio (LVR) they must have to purchase a property. However, most economists forecast this won’t happen until the second of 2021, with investor activity relatively low to start 2021.
Is 2021 the right time to start investing in property?
Whether you should start investing in property in 2021 essentially comes down to your own personal circumstance. A common saying when it comes to investing is ‘time in the market, not timing the market’. While the market is on a hot streak now, it more than likely it won’t be that way forever. Prices ebb and flow, but over the last 40 years, property prices have steadily risen. Keep in mind, past performance is not a reliable indicator of future performance. It’s worth considering talking to a financial adviser to talk you through your options and decide what moves to make. If you think you may want to start your investment journey now, here's a strategy that may work for you.
Using the equity in your home to invest
In short, equity in your home is the value of the home minus how much money you need to repay on your mortgage. You can access the equity in your home by refinancing your home loan. If your property has grown in value since you first purchased it, the lender may allow you to refinance based on that new value, allowing you access to the equity. You could then use your access to this cash as the deposit on an investment property. Keep in mind it's unlikely a lender will allow you to access all of your equity and each makes a decision based on a variety of factors, like your income and credit rating. Typically, lenders allow borrowers to access up to 80% of their property’s value. It’s also worth noting you’re borrowing more money when you do this, increasing your monthly repayments and taking longer to pay off your loan. If you want to calculate your equity, check out our equity calculator.
If you’re thinking about starting your investment journey in 2021, our Smart Investor home loan has a highly competitive rate of 2.74% p.a. (2.76% p.a. comparison rate). See how much you could qualify for.
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