What happens if the price of the land changes significantly?
The price of the house and land packages are fixed in the building contract, regardless of the market price at the time of settlement. Building prices went up an average of 16% in the 12 months to the end of 2009 (Source: Home Price Guide). However, since the Reserve Bank started increasing interest rates and the ongoing effect of that which slowed sales somewhat, many builders have trimmed their margins to keep their tradesmen employed and prices for new residential investment property are at a good reasonable level offering good value.
Have I missed the real estate “boom”? Is it too late?”
Right now is a very good time to be investing in Residential Real Estate. Why? With the first home buyers grant having been scaled down and most of the buyers (who previously rented) were able to partake of the great handouts in that scheme having purchased their new homes there is a very good opportunity for investors to buy at very good prices.
Advisors will always tell you to take a medium to long term view toward investment property (7-10 years) no matter whether we are at the start or at the end at the end of a boom.
Obviously, you cannot pick when property cycles are going to change. Even the so called “experts” are not always right! The Sydney & Melbourne markets are good examples; everybody said they couldn’t go higher; it will finish after the Olympics in Sydney etc. etc. Prices skyrocketed to unprecedented heights, fell for a year and now appear to be steadying. How long was their boom happening? Approximately for 6-7 years. A slump was forecast 5 years ago.
The South East Queensland market is a different market again. Driven by different factors such as interstate and overseas migration, jobs growth outstripping population growth, very affordable housing and a phenomenal lifestyle!
How can I be sure property will increase in value?
You can’t. The downside of all investments is that there is some element of risk. However, property is regarded as “low to medium risk” because historically it has always increased in value over time. People need shelter. Land is scarce, especially near major cities, beaches, water, golf courses, shopping centres, transport and employment. The population is increasing and we still have the great Australian dream of “having our own place.” And of course there’s the effect of inflation.
June 21, 2010 – 8:44PM
Australia must do better in the supply of housing – a supply gap that could grow to 600,000 by 2028/29, Treasurer Wayne Swan has warned.
Mr Swan told a Property Council conference in Canberra that the National Housing Supply Council estimates the country’s housing stock is currently short of 178,400 dwellings.
Historical evidence, your own research, professional advice and common sense should assist you in assessing what is right for you and your future.
Ask anybody who has bought their own house a few years ago what it is worth now compared to what they paid- that’s the simplest research and should be all the proof you need.
In summary, you purchase property at today’s prices, that is fixed at that price. Over time, your income plus rental income and tax deductions you receive will go up in line with inflation.
What would happen if interest rates increase?
If your loan interest is fixed it would be better than if it was variable at this point. If the rates increase, you are protected from any increases in payments. If they fall, you have still bought your loan at a good price. If your loan is variable and interest rates increase, you are buffered by an increase in your tax deductibility and rents are generallyincreased to absorb the additional interest.
If I get an interest only loan do I actually get to own the property?
When involved with investment property you are looking for a good tenant, low maintenance, increases in the capital value of the property and tax deductions. Your equity in the property and how fast it increases is important. Eventually the debt will be insignificant compared to the property value and how much you owe on it.
Don’t buy it until you can afford it! We were always told that.
You were probably trained to think that way when you were young and mainly interested in buying things which do not increase in value eg. cars, boats, overseas trips. This is generally referred to as bad debt. Good debt refers to assets which appreciate in value ie property.
What if we get too many people investing in rental properties?
Currently in Australia approximately 30% of people rent where they live. In the Gold Coast and Brisbane it’s generally about 34%. The Bureau of Statistics have projected 50% of the population will be renting by 2012! This will be brought about by the rapidly increasing price of available homes, shortage of land in reasonable proximity to major cities, employment and migration.
Currently, in South East Queensland vacancy rates are very low (about 1 to 1.5%), ask anybody trying to rent somewhere to live how difficult it is to find a property to rent!
Is Negative Gearing for property new? I haven’t heard of it before
Negative Gearing was legislated in 1936. Until the last few years it appears the “rich” knew about it and its benefits due to having good advisors, but not everyone was in a position to take advantage of the many benefits on offer. Click here to find out more about negative gearing.