Not that long ago, I wrote an article Australian vacancy rates low, rental yields to increase pointing out the changes in dynamics in the Australian property market. At that time I was trying to suggest that the time has come for the savvy investor to once again look into property market. It seems that lots of them did just that.
Today in article Investors drive up housing finance, Sydney Morning Herald came up with some interesting numbers which indeed confirm the renewed interest in the property market. Quoting the words of ANZ’s chief financial analyst about the increase in investment loans in February:
“The number was quite strong, driven by another surge in investor housing loans, and that’s consistent with our expectations that investors will be pulled back into the market this year by the dramatic tightening of rental vacancies that we’re seeing across most capital citiesâ€?
Overall there seems to be a general agreement within the financial and property industries both seeing raising number of investors coming back to the property market despite the current interest levels.
So is now the right time to buy investment property?
As always the answer will largely depend on one’s personal circumstances. In my opinion, buying an investment property today most probably won’t be the worst investment decision you have ever made. However don’t forget, that once the news reached the mainstream media, any value investor will advise you that its probably too late.
Watch those interest rates
One of the biggest concerns to any investor using borrowed funds is his ability to service his loan. Should the interest rate on the loan increase to levels far above those of the rental return, an investor may find very difficult paying the cashflow shortfall from his own pocket.
As, at the time of writing, the aussie dollar is reaching historical highs, an interest rate raise in the immediate future is less probable. Combine that with historically high (and raising) rental yields and one could be excused for seeing the future all too rosy. But we should not forget that property investing is, in most cases, a long term play and that seemingly favorable facts of today are unlikely to last for the entire period of your ownership.
So keep that in mind, carefully calculate your borrowings and take on only as much debt as you can comfortably withstand during the periods of significant interest rate movements.
What are you plans and expectations about the future of Australian property? Would you invest now? Let us know!
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