Top tactics for owners
How best to protect yourself if property values take turn for the worse
TOMORROW’S Federal Budget is expected to include a package of measures to improve housing affordability. It is the Government’s answer to pressure from first home buyers, the media and parents of adult children concerned about the affordability of the great Australian dream.
As we’ve said before, in our opinion, it is always dangerous when politicians start tampering with the property market, as they tend to be very ham- fisted about it.
The reality is, as recent figures show, the booming property markets in Sydney and Melbourne are already correcting themselves. Other capital cities and regional areas have been soft for a while now.
It ’s important to understand “Australia” is not one property market and that’s why it is dangerous to introduce all- encompassing policies.
Having said all that, there is no doubt the property cycle is turning and the Federal Budget is likely to accelerate that momentum. So how do you protect yourself from the upcoming flattening, or downturn, in values? DO I WANT TO LIVE HERE FOR THE NEXT FIVE YEARS? If you’re an existing homeowner this is the most important question to ask yourself right now. Because a downturn in values really only affects you if you want to sell in the downturn.
If you’re happy to stay in your existing home for the next five years, and it’s perfect for you, then you don ‘ t have a care in world. You can happily ride through a downturn with no problems at all and wait until the next price recovery.
But if your plan is to trade up or down in the next five years then it might be worth taking advantage of the peak in the cycle, selling now and then maybe renting until the cycle gets to the bottom and then buy back in.
Naturally, there are lots of different facts to take into account – and many of them are not financial – when answering this question, but it’s worth going through the process. DO I HAVE TOO MUCH DEBT AGAINST MY HOME? When property prices start to fall, financiers become nervous. They look at what’s called your loan- to- valuation ratio and if it falls below a certain level they look at your borrowing closely.
So start looking at it yourself before they do.
As valuations fall, the level of equity in your home falls as well. If the valuation falls below the level of the debt, you then have what’s called “negative equity”. Banks hate that.
If interest rates start to rise then that adds an extra layer of nervousness. Rising loan repayments on falling equity can be dangerous. So start getting your home loan down and increasing your equity. NEVER, EVER BUY BEFORE YOU SELL In this market at this stage of the property cycle, it’s just crazy to sell your existing property quickly and cheaply. While auction clearance rates in Sydney and Melbourne still seem high, there is a definite softening and an increase in negotiated offers after a reserve isn’t reached.
We have a mate who came across a “bargain” in the next street selling for the same price it was four years ago. He snapped it up and is now finding his existing house isn’t getting the interest or the offers he was expecting.
But he’s committed to the bank and he’s starting to sweat. He needs a buyer. You don’t need that pressure, so sell before you buy. SET A REALISTIC PRICE If you do want to sell, make sure you price correctly because in a falling market, time can be your enemy. The longer an incorrectly priced property stays on the market, the harder it gets to sell.
If you set the price too high you may discourage potential buyers, but you don’t want to sell it for too little. Take the time to research what similar homes, on similar blocks, have been selling for in your area.