Tips on buying an investment property post COVID

If you are looking to purchase an investment property now or in the near future you will be forgiven for being cautious, given the impact of COVID-19 on all aspects of the Australian economy. 

With dire predictions that we could see a 20% fall in house prices, and the prospect of the unemployment rate ballooning to 11.1 per cent in the months ahead – there is no shortage of doom and gloom.  However from an economic perspective it’s too soon to tell what is going to play out, given that the full effect of COVID-19 on the broader economy is yet to be realised. Property is also a slower moving and more stable asset class, so values are unlikely to fall into negative territory precipitously.

Given this uncertainty prospective property investors need to be especially diligent and research the market thoroughly so they can make an informed decision. 

The impact of COVID-19 on the residential property market 

With uncertainty the watchword, the most visible repercussions for the residential property market have been a significant drop in market activity, and a weakening in consumer sentiment. 

Despite this – according to property data analysts CoreLogic, most regions actually recorded a rise in property prices over April, though the rate of growth had halved from the previous month, dropping from 0.7% in March to 0.3% in April. Overall they expect ‘conditions to cool over coming months as buyers and sellers wait for confidence to return’.   

Domain’s March House Price Report reports that the economic uncertainty has seen a ‘rise in the number of listings with their asking prices revised’. They also have recorded a drop in ‘the number of new properties being listed for sale’ from mid-March. This ties in roughly with the implementation of coronavirus restrictions and the international travel ban. They believe house price declines are likely to continue in the short term – though no one is clear how long the COVID tail will be.

Auction clearance rates have clearly been impacted by restrictions on in-person auctions and public inspections, especially in the immediate weeks following the ban. CoreLogic reports that the number of properties withdrawn from auction events averaged 45.8% across Australia’s capital cities after the ban. Even though vendors could make use of technology like video streaming, immersive 3D video for virtual inspections and online auctions, many chose to switch to sale by private treaty or simply sit tight for the time being.

This begs the question, when can we expect the property market to normalise? 

Recovery of the property market post COVID-19

Despite the overall gloom there is some light at the end of the COVID-19 tunnel. 

The first of these is that some states are already moving on easing restrictions, with open home inspections and public auctions back on the agenda in NSW and WA. This could provide an uptick in auction volumes in the coming months. Some analysts also point to the unprecedented government stimulus measures, which could provide the necessary boost for a broader economic recovery, and shield the housing market from a major correction. Pent-up demand – due to the month’s lockdown – could also provide the market with a much needed boost and recovery as restrictions ease or come to an end. 

CoreLogic’s Tim Lawless, believes a recovery will depend on a number of factors, including how long it takes to contain the virus, and if further constraints on business and personal activity are required. With Australia’s restrictions cautiously being eased the housing market could bounce back sooner than we think – though significant challenges lie ahead.  

Tim Lawless, Head of Research – CoreLogic Asia Pacific

Uncertainty brings opportunity

While some investors are spooked by COVID-19 and the economic uncertainty it brings, others will want to proceed with their property investment plans. Despite the current malaise the market could be an opportunity for buyers as some vendors are revising their asking prices due to the uncertainty, while others will have committed to sell due to personal circumstances – or a desire to switch to cash. 

As an investor one still needs to tread with caution. 

While interest rates are at a record low, and money is cheap, you should always factor in the affordability of a mortgage at a higher interest rate into your budgeting. You also need to be realistic and aware that post COVID the rental market has suffered, so you’ll likely need to factor in lower than market-value rent, with the possibility of an extended vacancy time post-settlement. 

Tips for investing in property post COVID

When it comes to purchasing an investment property, due diligence is key in this post COVID market. When looking to buy a property:

  • Research which markets are still performing strongly, and have good rental demand. High density apartments close to universities may well be impacted by the absence of foreign students for the foreseeable future.
  • Negotiate with the seller a provision in the contract to market the property at least 2 weeks before settlement, potentially helping to reduce your vacancy window and secure your first tenant.
  • Take advantage of record low interest rates, by fixing all or a percentage of your loan, giving you certainty over what your repayments will be. Many of the banks are offering fixed interest rate investment loans for 1,2,3,4, or 5 years – with the ability to make extra payments, repayments holidays and a handy redraw facility.
  • Don’t just go with the selling agents property management team by default. Look to engage a property management specialist who are experts at leasing, at least 4 weeks prior to settlement. Look for reviews, compare pricing and find out how they market your property. Remember: it is essential you secure quality tenants quickly in a ‘down market’, or you risk having your property sitting vacant.
Ash Frenken

About Ash Frenken

An inspired entrepreneur with a vision to drive change in the Property Management industry.

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