On May 18th ASIC chairman Greg Medcraft warned investors about buying property in Melbourne and Sydney. "History shows that people don't know when they are in a bubble until it's over” he noted. He also said that the “the long-term average income to average price ratio is four to five times, but at the moment it is at historic highs.” For the average punter, that’s not good news.
Like other housing bubbles across the world, Australia’s comes from a belief that housing prices have already reached their highest level, and that the level is sustainable when it is not. And also like the other bubbles, this causes people to face rising costs, an increase in borrowing, and the possibility of evictions. In Australia the blame is often placed on Chinese investors, but in truth many factors - population growth, buyer’s fear of missing out, poor decisions by local governments – are involved. Negative gearing (the offering of a tax break to investors who make a loss on their investments) is also controversial.
The Australian government is taking some action, slapping foreign property investors with new application fees and investigating dubious deals more thoroughly. But this hasn’t helped everyone - many first-time house buyers feel this is too little too late, and that they’ve got a long uphill climb ahead of them. People aren’t happy about the state of the Australian economy and feel the government has let them down. Payday loans and unemployment are both rising, which is not a good sign. Others have pointed out that turning a blind eye to the bubble risks a Lehman Brothers style economic disaster.
This sounds very unnerving, but you shouldn’t necessarily let it put you off. Some people disagree on there being a housing bubble at all, and suggest Sydney is heading for ‘a golden decade’ of housing growth due to good lending practises. Who’s right? But either way, it looks like a very fine line is being walked.
So in this chaotic state, how can an individual make money from investment property? Well, it may not be as hard as you think – if you’re careful. Also, whilst ‘individual’ is the term used here, many people choose to team up to buy and sell property, each taking on a percentage of the work. This can work out very well in a lot of cases.
What to do first? Well, consider getting a building inspection certificate in order to find any slight flaws in the property and be assisted in fixing them. This allows you to get your property to auction knowing it’s at its very best, and therefore maximising the return on investment. Depending on what you need, this can cost a fair amount of money – but it’ll be worth when it come the sale.
Consider whether to sell your property vacant or whether to sell it whilst it’s occupied. If the latter, make sure your tenants are fully informed and that you’re following every law regarding them to the letter. It differs from state to state how much notice landlords are allowed to give tenants. The last thing you want is to become involved in a legal dispute, so make sure all parties are up to date at all times.
Bear in mind that buyers will be interested in how much rental income the property is gaining, so it’s possible you may have to increase the rent on the property – but again this has to be done fairly and legally. The tenants too have a responsibility to keep things running smoothly, though, and any damage to the property they cause needs to be paid for by them. Even things like painting the walls gaudy colours could put buyers off, so make sure they’re abiding by the rules.
Get good advice when it comes to mortgages, the market, and capital growth. If you’re not good at maths, hire someone who is, or you’re probably not going to get far. Investing in property isn’t easy money, and it takes a lot of work, which leads to possibly the most important thing: always do your research. Keep up with the financial news, talk to local councils, find out what sort of properties different demographics are buying – stay ahead of the game, in other words. Plan for the long-term, and be prepared for any eventuality!