The Time to Invest is Now
When the first wave of Corona concern hit at the beginning of this year, the investment market was the one hardest hit. The initial concerns from investors included that their tenants would not be able to pay rent, they would not be able to vacate a tenant if required, and that the bottom would fall out of the market sending the value of their investment property in to freefall.
Thankfully, the impact has not been as damaging as we first feared. The reality of the residential investment market is that there has been a significant decline in the purchase of investment properties; this has created a shortage of properties available for rent in a time where demand is on the rise.
The rise in demand, and shortage of supply is having an impact on the speed of which properties are being leased out, many of which are being leased after one inspection. This highlights a significant opportunity for current investors and potential investors to drive investment income up.
There are several key factors that support why now is the perfect time to start or grow your investment portfolio, these include; high demand, low vacancy rates, long term low interest rates, and the proposed changes to banking reforms in early 2021.
High Demand and low vacancy rates go hand in hand. The demand is being generated by the push to get out of metropolitan areas and re establish in regional areas, we will see a surge in this activity once metro Melbourne is open again. Some homeowners will look to take advantage of short stay opportunities as Australia residents look to holiday locally as opposed to travelling overseas, further reducing the amount of available property. Tertiary education enrolments have increased as our community reskills, this will fill the void of the loss of international students. The large percentage of currently leased properties that are being offered for sale are being purchased by first home, and owner occupier buyers which is then forcing these tenants to find a new home to lease.
Interest rates do not look like they will be changing any time soon, with some financial institutions offering fixed rates at 2%, highlighting the belief that rates will remain low for the foreseeable future.
The biggest economic impact could be on the horizon. As reported by the abc.net.au/news on the 25th September treasurer Josh Frydenberg has announced a proposed reform of credit regulations in a bid to reduce red tape and speed up loan approvals to inject credit into a post-pandemic economy. The reforms, which will kick in from 1 March 2021 if legislation is passed, has been welcomed by the banks, believing that it will help ensure the flow of credit to consumers and small businesses. Australian Small Business and Family Enterprise Ombudsman Kate Carnell said the proposal would likely remove “onerous barriers” for small businesses looking to access funding.
“Since the banking royal commission, small businesses have faced an uphill battle to secure a loan, due to unrealistic serviceability requirements from the banks,” Ms Carnell said. “The pendulum has swung too far and now is the time to correct this imbalance which is harmful to small businesses.”
In summary, it has been identified that the changes post royal commission have been restrictive and the aim is to allow a release of credit from the banks. The most significant impact could come from a change to allow equity lending. A shift towards allowing borrowers to lend utilising the equity in their existing properties will create a positive lending platform and will drive investment purchases.