Risks to look out for in property investment

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Property investing, in itself, is already a risk, and once you go through the process, you will find yourself facing even more risks.

These uncertainties may rattle starting and seasoned investors, especially at a time when the weakening market has been the talk of the town.

In an interview with Your Investment Property, Real Wealth Australia's Helen Collier-Kogtevs said that the current market condition impacts investors' decisions.

"This is now a mindset game. As nobody knows where the bottom is, investors are running scared. However, educated investors understand the fundamentals and as long as they are followed, quality property will do well in the long run, as property is a long game, not a get rich quick game," she said.

Recessions and downturns last on average 18 months to two years. Hence, savvy investors know that they need to bolster up buffers to sustain them, should they be affected.

"For everyone else, getting an education in property will help minimize the risk and give them the confidence to purchase a property at discounted prices," Collier-Kogtevs said.

Tough investor lending due to the investigations conducted by the banking royal commission, paying too much for a property in a falling market, and the lack of strategy to ride the cycle are the top risks faced by property investors, according to Collier-Kogtevs.

The commission was introduced by the government in December 2017 to scrutinise and report on misconduct in the banking, superannuation and financial services industry across the country. During the process, the big banks were called out for their lax lending standards. As a result, banks tightened their rules for borrowing, and this eventually took a toll on housing finances.

The latest Australian Bureau of Statistics data on housing finance revealed a 2.5% decline in the value of dwelling commitments in the year to November, including a 4.5% drop in the value of commitments for investment property.

Investors may also be prone to paying too much for a property in a falling market. Sydney and Melbourne home prices have now been dropping for over a year, but worse may be on the way. In December, the home values of Australia’s largest capital cities dropped quickly and drastically.

CoreLogic predicted that conditions for January would be similar to December. Hence, it is important to do your research and consult with an expert before purchasing any property.

Finally, failure to put a strategy in place to ride the cycle can cause problems. Michael Yardney, Metropole Property Strategists CEO, said that the best way to get on to the right track is to formulate a strategic property plan.

He said that speaking with an independent property strategist can give you personalised yet facts- and results-driven advice that puts you on the path towards property wealth.

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