Home owners, investors and Perth’s property market

Bruce Brammall, The West Australian, 18 June, 2018


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It seems property markets have puffed out – and statistics everywhere seem to be declaring a turning of the tides.

Sydney and Melbourne property markets have passed their prime, their use-by date. And they’re starting to get a bit whiffy.

But for the West? Well, it’s beginning to smell a little like spring.

The two truly great things about property are: (a) it’s a “growth” asset and therefore cyclical; and (b) it’s not homogenous.

Yes, these are good things. If Sydney and Melbourne, which have exhibited signs of super-human strength in recent years, are finally feeling the pinch, then understand that for what it is.

They have run their race. You could argue it’s been a marathon, given the length of time the boom has been running. But it’s a race that’s over, nonetheless.

West Australians should possibly be sporting a wry smile. They’ve already been there. They know the pain that is possibly facing Sydney and Melbourne. But they’ve taken their medicine, and shouldn’t get sucked any further into any east-coast negativity.

WA was years ahead of the upwards cycle, care of the resources boom, and then years ahead of the downturn. It has felt property pain for the last four years.

Many homeowners and investors took haircuts. Others held on, knowing they were sitting on negative equity, but refusing to sell at a loss. Or, as per below, are homeowners who should care less than investors about dips in property prices.

Where to from here? Is it time to make a property play?

As always, that will depend on whether you’re an investor or a home buyer. And where you’re buying. And other more personal factors, such as income stability.

A lot has changed since the last time Perth’s property prices were booming and people were piling into property.

Since mid 2014, official interest rates have substantially further reduced. The RBA has cut rates from 2.5 per cent to 1.5 per cent. Rate hikes seem to be off the table for now.

Since mid 2015, banking overseer APRA has changed the interest-rate game in a far greater way. Through pressure applied to banks, investors and those wanting interest-only repayments are now punished.

Homeowners on principal and interest will often be paying 1 per cent less than an investor wanting interest only.

As part of the APRA changes, it’s now harder to qualify for loans with the major lenders, as a range of new buffers (including higher minimum expenses) are now built into bank affordability calculations.

These measures are likely to have an impact on how the coming WA market behaves. Investors, comparatively, hold less of an advantage than they did last time.

Yes, they still get tax deductions on the interest, but they start with higher repayments. They will find it harder to get funding. Many who would have been able to invest in the market last boom will be locked out of this one.

But it would appear that property buyers of both sorts are starting to wake. The early movers in Perth have been higher-end suburbs, which is typical. The ripple effect then usually sees any price improvements spread out.

For homebuyers, I’ve always argued that where property prices are headed should be less of a consideration than making a decision to buy when you can afford to.

But, gee, it’s certainly nice to be able to buy when it feels like you’re getting in at bargain basement prices.

The primary purpose for investors is making money – overpaying is death. Buying just before a downturn is disastrous. They need capital gains and/or strong incomes to flow. Or they would have been better off with their money in a bank, even if it was paying a pitiful interest rate, or doing nothing.

The same does not apply to home owners. The primary purpose of a home purchase is emotional – they are buying for a roof over their heads and one or more of a place that is near work, schools, friends, family or a lifestyle they want. Price appreciation is great, but it’s generally a secondary consideration (as it should be).

Perth experienced the lowest turnover of properties in nearly three decades last calendar year. It may just have been the final death knock of a market on its knees, before the inevitable, eventual, recover.

Bruce Brammall is the author of Mortgages Made Easy and is both a financial advisor and mortgage broker. E: bruce@brucebrammallfinancial.com.au.

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