Stocks drop: Property investors rejoice

Stocks drop: Property investors rejoice

A dip in the nation’s housing stock, the volume of properties for sale, has presented opportunities for investors, as would-be buyers look to rent property instead.

Despite a surge in May, residential property listings dipped in June, leading to stabilisation of stock levels.

The findings come from SQM Research and are sure to inspire confidence in those contemplating their property investment opportunities. 

Drop in stock levels great news for investors

Residential housing stock fell 5.3 percent month-on-month to June, according to SQM Research. Stock levels have decreased 3.3 percent year-on-year to June, making ownership of rental properties valuable. 

Australia’s capital city asking prices rose, as the stock levels fell, by 0.8 percent for houses and 0.5 percent for units.

On top of stock level activity and increased asking prices, investors have something else to celebrate: low interest rates.

Glenn Stevens, Reserve Bank of Australia Governor, highlighted on July 1 that a period of stability in interest rates is likely to persist for some time.

Which capital city is gunning ahead?

Some cities experienced more significant drops in stock levels than others, which SMSF investors would be wise to pay close attention to.

The city with the highest monthly decrease in residential housing stock was Sydney – a largely unsurprising finding, given recent activity in this incredibly active property market. 

The 12.4 percent month-on-month decrease in stock levels may indicate increasing competition among buyers to secure property. Existing homeowners and investors can tap into their equity in order to invest in rentals, putting them at an advantage over first-time buyers with lesser financial leverage.

Other capital cities to keep an eye on

Melbourne’s housing stock decreased 9 percent month-on-month to June, followed by Canberra (-8.2 percent), Hobart (-8 percent) and Adelaide (-6.3 percent).

Adelaide could be a wise pick for building an investment portfolio, given recent findings by the Australian Property Monitors (APM). Median weekly asking rents for houses have increased 1.5 percent year-on-year to June, while asking rents for units have spiked by 1.8 percent over the same period.

“Adelaide is providing highest yields for units of the major mainland capitals,” noted Andrew Wilson, Senior Economist for the APM.

By contrast, Sydney unit rents have reached a new peak level, according to APM. 

Sydney house prices increased 7.9 percent in the year to June – well ahead of the 4.7 percent capital city average, SQM research noted.

Don’t forget about Darwin

While all capital cities experienced a monthly drop in housing stock levels, Darwin had the lowest dip, down by 0.8 percent. For investors looking to foray into the property market, Darwin could present a good opportunity – the comparative dip in stock levels and 3.3 percent quarter-on-quarter decrease in asking prices makes Darwin a potentially affordable first-time investment option.

With cheap home loans and investment loans on offer, now may be the time to act – whether to buy a SMSF investment property or otherwise.

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Learn more about home loans

What is an investment loan?

An investment loan is a home loan that is taken out to purchase a property purely for investment purposes. This means that the purchaser will not be living in the property but will instead rent it out or simply retain it for purposes of capital growth.

What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

Usually, these loans have higher interest rates and a shorter repayment duration.

Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

What is appreciation or depreciation of property?

The increase or decrease in the value of a property due to factors including inflation, demand and political stability.

What is stamp duty?

Stamp duty is the tax that must be paid when purchasing a property in Australia.

It is calculated by the state government based on the selling price of the property. These charges may differ for first homebuyers. You can calculate the stamp duty for your property using our stamp duty calculator.

What is equity and home equity?

The percentage of a property effectively ‘owned’ by the borrower, equity is calculated by subtracting the amount currently owing on a mortgage from the property’s current value. As you pay back your mortgage’s principal, your home equity increases. Equity can be affected by changes in market value or improvements to your property.

What is a line of credit?

A line of credit, also known as a home equity loan, is a type of mortgage that allows you to borrow money using the equity in your property.

Equity is the value of your property, less any outstanding debt against it. For example, if you have a $500,000 property and a $300,000 mortgage against the property, then you have $200,000 equity. This is the portion of the property that you actually own.

This type of loan is a flexible mortgage that allows you to draw on funds when you need them, similar to a credit card.

What is equity? How can I use equity in my home loan?

Equity refers to the difference between what your property is worth and how much you owe on it. Essentially, it is the amount you have repaid on your home loan to date, although if your property has gone up in value it can sometimes be a lot more.

You can use the equity in your home loan to finance renovations on your existing property or as a deposit on an investment property. It can also be accessed for other investment opportunities or smaller purchases, such as a car or holiday, using a redraw facility.

Once you are over 65 you can even use the equity in your home loan as a source of income by taking out a reverse mortgage. This will let you access the equity in your loan in the form of regular payments which will be paid back to the bank following your death by selling your property. But like all financial products, it’s best to seek professional advice before you sign on the dotted line.

What is an interest-only loan? How do I work out interest-only loan repayments?

An ‘interest-only’ loan is a loan where the borrower is only required to pay back the interest on the loan. Typically, banks will only let lenders do this for a fixed period of time – often five years – however some lenders will be happy to extend this.

Interest-only loans are popular with investors who aren’t keen on putting a lot of capital into their investment property. It is also a handy feature for people who need to reduce their mortgage repayments for a short period of time while they are travelling overseas, or taking time off to look after a new family member, for example.

While moving on to interest-only will make your monthly repayments cheaper, ultimately, you will end up paying your bank thousands of dollars extra in interest to make up for the time where you weren’t paying off the principal.

How do I calculate monthly mortgage repayments?

Work out your mortgage repayments using a home loan calculator that takes into account your deposit size, property value and interest rate. This is divided by the loan term you choose (for example, there are 360 months in a 30-year mortgage) to determine the monthly repayments over this time frame.

Over the course of your loan, your monthly repayment amount will be affected by changes to your interest rate, plus any circumstances where you opt to pay interest-only for a period of time, instead of principal and interest.

What does pre-approval' mean?

Pre-approval for a home loan is an agreement between you and your lender that, subject to certain conditions, you will be able to borrow a set amount when you find the property you want to buy. This approach is useful if you are in the early stages of surveying the property market and need to know how much money you can spend to help guide your search.

It is also useful when you are heading into an auction and want to be able to bid with confidence. Once you have found the property you want to buy you will need to receive formal approval from your bank.

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

What is appraised value?

An estimation of a property’s value before beginning the mortgage approval process. An appraiser (or valuer) is an expert who estimates the value of a property. The lender generally selects the appraiser or valuer before sanctioning the loan.

How can I get a home loan with no deposit?

Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.