Real estate market to be tougher in 2016, but opportunities still present

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The real estate market in Australia will be a tougher one in 2016 according to one property expert, as two main groups of buyers compete for properties amid a more restrictive lending environment.

Experienced property investor and head of business management at wealth management firm Yellow Brick Road, Andrew Morello believes there will be a different dynamic in the property market this year as first time buyers and experienced investors become the most active.

“What’s happened recently is that there’s been a shift away from the investors and back to the owner to the owner occupiers as some of the heat’s come out of the market,” Morello said.

“If you went to an open home or an auction you were seeing empty nesters looking to downsize, first time investors and first home buyers. The first home buyers will still be there, but I think what we’re going to see now is the re-emergence of the really experienced investor who’s been in property for 30 years or so and really knows what they’re doing,” he said.

Morello believes those investors that will return in the market abstained from buying recently as they were put off by people over extending themselves.

“The past few years the really shrewd investors have been frustrated by how much heat was in the market and having to compete with so many people who were willing to over capitalise and pay more than what properties were worth,” he said.

“Twelve or so years ago when I got in to property I was one of the one who loved the real boom times like we’ve just had, but now I’m a bit older and bit more experienced and I realise that the slow and steady path is probably better for everybody.”

While some people who step away from the market in 2016 will do so because of changes to investment lending policies, Morello thinks that might actually be a good thing.

“For mum and dad investors who are just starting out a lot of them can get caught up in the hype and that’s when they get into trouble. The more experienced investors will take a better look at things and if the numbers don’t stack up they’ll walk away.

“It can be hard to educate the unexperienced ones, so sometime the government is forced to come up with these sorts of strict guidelines instead.

“If the changes keep people out of the market that are going to over capitalise themselves and encourage activity from the investors that really know what they’re doing and will stimulate the market in the right way then that’s a good thing.”

While he thinks many first time and inexperienced investors will step back this year, Morello, who has just released an e-book aimed at educating investors, says there are still opportunities out there for those who want to take the first step.

“There are still options out there for first time investors. A lot of the changes the banks have done are tightening serviceability requirements, but they’re still looking to lend.

“Interest rates are low and the economy looks like it will be stable for the next 12 – 18 months, so I think it’s a great time to start if you have a plan.

“I’d do my calculations and see what I could afford, and make sure I know I could afford it if the property happened to vacant for a couple of months. I’d fix in my rate now so I’ve got a good rate for the next three to five years and I’d make sure I know the current equity situation I might have in any other properties.”

While many first time investors might be waiting to find what they think is the right property before taking the plunge, Morello suggests coming at it from a different angle.

“The other thing I’d be doing is making sure all my ducks are in a row before I go to a lender. Make sure you can show you’ve got savings, that you’re credit worthy, you can show you’ve been working in one place for 12 months and you know how much you want to borrow.

“For me the property is often the last link in the chain. Make sure you know what your situation is and plan it so when an opportunity comes along you’re ready to take it.”
 

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