I thought I’ll tackle a controversial question that I get asked a lot these days – “is now the right time to buy a property”?
Now first of all let me take my broker hat off and put my investor hat on – because if you ask anyone working in real estate industry they’ll always tell you now is ALWAYS the best time to buy 🙂
In general people buy properties with the following 2 purposes:
1. Purchasing Owner Occupier i.e. buying your first home, upgrading your own home
For those of you who are looking to purchase your first home or upgrading your own home, this question is irrelevant. You’re not trying to time the market – you’re buying because you have the need and I’ll give a few examples:
– Wanting to have your own space and move out from parents place
– Planning to have kids
– Need more space for kids as they grow up, or move to good school zone
– Owning a place works out to be equivalent (or cheaper!) than paying rent
If any of these factors apply then you would be categorised as someone who has a need. Government understands this group of buyers are the pillars holding the property fort at the moment and will continue to do so until investor sentiment improves, that’s why the current grants are all focused on incentivising this group of buyers in particular first home buyers entering into the market.
2. Purchasing Investment Property to accumulate wealth
Now let’s have a look at the other side of spectrum – those who are looking to purchase property as investment in order to accumulate wealth. This group of people ask the question because they want to “time the market” or they’re just not confident about property prospects in the long run.
Now I’m terrible at timing the market. So my personal approach has always been rather than trying to time when the bottom of the market is, I prefer to accumulate when I can and hold for long term. That to me is called investing and that’s how the Baby Boomers are able to accumulate wealth through property in the long run – whether it’s through their own home or IP.
“But David, all the media is saying the property prices is dropping and some even say up to 10 or 20%! If we buy something now aren’t we catching a falling knife?”
Sure, no one knows what will happen to the property value and the real impact of COVID may not have fully shown itself yet. So yes, price could still continue to drop…however you could also be up for a loooooooooooooong wait if you’re looking at crashing figure like 20% or Steve Keen’s 30%.
Looking at the Corelogic index published back on 30th June 2020:
Apart from Perth, Sydney & Melbourne’s dwelling value are the biggest hit so far with Sydney at 0.8% drop for the quarter and Melbourne 2.3% drop. That’s somewhat expected due to border lockdown so no new immigrants = less demand for properties from both rental & buying perspective. But if you look at the annual change for both cities, the median value of these 2 capital cities have still shown a stellar growth of 13.3% for Sydney and a 10.2% for Melbourne respectively.
The point here is property is an asset class that is not as liquid. Unlike shares it cannot be converted into cash easily – it takes weeks if not months to buy or sell a property. As such the price doesn’t fluctuate as much as share prices and chances are we’ll continue to see small incremental changes all the time like what we have observed to-date.
Not to mention with so much money printing around the world which will typically inflates asset prices. We’re already seeing such phenomenon in US – unemployment at record high but the Dow Jones keep rallying up. At some point property prices will be next. Oh and did I mention the record low interest rate, which as per RRA Governer Phillip Lowe will stay at record low until employemnt figures improve.
So in my humble opinion in the short term, yes property price may have a bit more room to drop due to COVID-19 impacts on economy as well as peoples’ confidence & perception. Again this is just my thoughts & opinions and no one has a crystal ball. However once we have developed a vaccine and gain some normality property as an asset class will continue to perform relatively well in the long run.
Buy when you can afford, not based on what the media is telling you and hold for long term view. That would still be my advice for anyone who is wondering whether to enter the property market or not.