Home buyers are in solid position to leverage on the current market conditions, according to RiskWise Property Research.
RiskWise CEO Doron Peleg said home buyers with long-term holding strategies were well positioned to negotiate aggressively to purchase high-quality houses that usually enjoyed very strong demand and were sold through auction campaigns at premium prices.
He said there were a number of factors in favour of buyers, particularly those looking for their first home.
Longer holding period and wealth creation over time
The average holding period of houses in Sydney, that in 75.9 per cent of cases belong to owner-occupiers, is 12.2 years.
The table below shows the capital growth for houses in the regional areas of Sydney in the past 5 years.
This shows that although there were credit restrictions by APRA, scrutinising of loan applications as a result of the Royal Commission and material price reductions until the election results in May 2019, houses in Sydney simply enjoy strong demand and with the chronic undersupply of houses, deliver solid capital growth.
“This means that owner-occupiers with secure jobs and no serviceability issues are not impacted by short-term market movements, unless they need re-finance,” Mr Peleg said.
“Only six months ago, in February 2020, a new peak for the Sydney property market was on the horizon, housing affordability was rapidly deteriorating, there had been strong indications regarding an increase in investor activity and potential regulatory intervention was being considered by APRA.
“Further, in the medium to long term, the chronic undersupply of houses in areas with good access to Sydney CBD, will be even worse, as there is no coordinated approach to provide supply of family-suitable properties in the middle rings. This is a well-known issue that has a major impact on Sydney’s dwelling prices for many years.”
He said the Sydney property market, particularly the more popular areas, had delivered solid capital growth in the past five years and with there were now a number of additional incentives that put home buyers and especially first home buyers in an enviable position.
These include federal government programs such as the First Home Buyers Deposit Schemejust a 5 per cent deposit can be used to enter the property market and the avoidance of Lenders Mortgage Insurance (LMI).
The deposit scheme opened to 10,000 buyers in the first half of 2020, with 10,000 more spots becoming available on July 1. In addition, in July the NSW government announced eligible first home buyers could access stamp duty exemptions on new home purchases worth up to $800,000 with further discounts on new home builds of between $800,000 and $1 million.
In addition, a major fall in consumer prices of 1.9 per cent in the June quarter, as reported by the ABS in July, has resulted in a negative annual inflation rate, which is down 0.3 per cent over the past year. This is highly likely to force the RBA to leave official interest rates at record lows for even longer, with no increases in the foreseeable future.
“Lower interest rates materially improve housing affordability in terms of serviceability ratio, i.e. the monthly repayments for any price point are simply lower,” Mr Peleg said.
“What this all means is now is the time to buy if you are a first home buyer or an owner-occupier with a secure job and ability to service the mortgage, as this current slowdown in the property market is only temporary, with houses in popular areas likely to experience solid capital growth in the medium to long term.
“Once the COVID-19 issue is resolved, most likely in 2021, the traditional connection between low interest rates and increase in dwelling prices is likely to take place.”
He stressed, however, that investors buying rental apartments unsuitable for families were taking an enormous gamble, with both equity and cash flow risk expected to materially increase. Serviceability risk has recently become a major factor for investors who rely on a stable rental income to cover the costs associated with property and particularly the mortgage.
RiskWise Property Research was formed in 2016 with the goal of providing property risk advise and research services to help its clients make informed purchasing decisions.
Its goal is to provide private investors, home buyers, property professionals and institutional clients with detailed risk information to support smarter decision making. Its vision is to be a global leader in property risk rating and research helping its clients to achieve deeper risk insights so they can make smarter property investment decisions.