Do you know who you’re competing against when buying a home or investment property after the Federal Government announced even more changes to the foreign investment rules on April 24?
What impact has the foreign investment rules had on our real estate market over the past 16 months and what impact will the new changes have going forward? How has it affected supply and prices and what’s likely to happen in the near future?
This week I joined Louis Christopher, SQM Research; Matthew Chun, Becton and Matthew Rollason, DibbsBarker to discuss these changes.
There’s been plenty of discussion in recent months about the increase of foreign buyers pushing up Australian real estate prices in established areas after the Federal Government relaxed the regulations last year.
We’re seen most financial institutions tighten up their lending criteria since the global financial crisis and considering what happened around the world on the money markets in the last 12 months it’s hardly surprising.
Recently, Westpac announced that first home buyers would need to meet a loan-to-valuation ratio of 87% instead of the previous 92%.
The countdown to Christmas has begun and the pressure is on to organise the gifts, the lunchtime feast and holidays away. While it’s important to have fun and enjoy the break, don’t get too carried away and blow your budget – particularly if you’re saving a deposit for a home or investment property.
The Reserve Bank announced another rate rise of 25 basis points this week with official interest rates now at 3.5%. There seems to be wide spread agreement that rates will continue to rise over the next year or two until more ‘normal’ levels are reached.
It’s important to keep this information in perspective and not panic. Let’s remember that the interest rate levels that we’ve enjoyed this year were deliberately set at record low levels designed to stimulate the economy. They were never going to remain at these levels for the long term.
Prospective home buyers often get so excited about buying their own piece of paradise that they forget about evaluating the future. They base their home loan on their current financial circumstances and don’t take into account their future plans.
For example, the repayments may only be affordable if both partners work – they forget that they’re planning a family in a few years which will reduce them down to a single income and increase their weekly expenses.
Don’t go overboard with the current low interest rates. Whilst rates are at 49-year lows, remember that they won’t stay at these levels for the long term.
Borrowing to your maximum at this (or any) time is a recipe for disaster. Save a significant deposit – no less than 20% - and budget to make repayments at 2% above the current rates.
Better still, pay your mortgage at this higher rate from the start and build up a buffer that you can use if times get tough financially down the track.
It looks like the NSW state government is set to repeat the mistakes of the federal government with additional incentives for newly constructed property. We’ve already seen what the federal government’s enhanced first home buyers grant has done to the lower end of the market which has essentially increased the asking and eventual sale prices of properties. In Sydney, I have seen first home buyers paying $20,000, $30,000 and even $40,000 more than they would be if the grants weren't on offer.
If you want to buy real estate well, rule number one is to remember who is working for whom. The selling agent will appear to have your best interests at heart however the truth is what they are really interested in is selling you a property they have for sale and selling yours if you have one to sell.
At the moment, I can’t believe how many sub $600,000 properties are selling so close to and above the asking prices – a result we haven’t seen since the buying frenzy in 2002. I speak with dozens of selling agents every week and they can’t believe it either.
I am seeing dozens of first home buyers literally paying 5% or more than they should be as they try to capitalise on the extra $7,000 grant from the government.
