Long-term investors with a wealth creation strategy in mind are being advised to understand the current headwinds facing the property market.
During a recent recording of The Smart Property Investment Show, produced by REB’s sister brand, Smart Property Investment, REA Group’s executive manager of economic research, Cameron Kusher, unpacked some of the latest data and how it impacts investors in the long term.
“If you are looking at property from a wealth creation perspective and you’re planning to hold for the next 20 or 30 years, the short-term volunteer, it’s a lot like the sharemarket, right? The short-term volatility shouldn’t really worry you too much. It’s all about the next 20 or 30 years [on the] horizon. But, certainly, I think there are a few more headwinds in the property space at the moment than we’ve seen for quite some time,” Mr Kusher said.
The property economic researcher pointed out, however, the short-term risks the market is currently facing.
“I think people should be aware of the risks. We’ve seen even just this week, APRA has come out and said that 10 per cent of mortgages are on some sort of deferral at the moment,” Mr Kusher said.
“We also know that rents are falling across most capital cities, and particularly in the inner-city unit markets, vacancy rates are climbing. A big driver of housing demand is obviously that people come and migrate to Australia and then they have to go and rent when they first get here.”
However, in the current market, the property guru pointed out the opportunity for investors.
“I think the biggest influence at the moment that’s not COVID-19 is actually where interest rates are. And I think the fact that the cash rate is sitting at 0.25 [of a percentage point], the lowest it’s ever been, some lenders are offering three fixed rate mortgages for 2.25, 2.3 per cent,” Mr Kusher said.
“I think what we typically see when interest rates are very low is that housing demand picks up. And to some extent, we are actually starting to see that in some of the high-frequency data we are seeing. Of course, the fact that we’re in a recession has really contributed to the recent weakness, but I think people are underestimating the impact of those ultra-low interest rates.”
Finally, he pointed out that changing consumer dynamics could have a positive impact on the property market.
“The fact that international borders are shut, we know that people that are probably saving for deposits for homes would have been planning to go and spend maybe a month in Europe or maybe a month in the US spending $10,000, $15,000,” Mr Kusher said.
“Now they can’t do that. Perhaps they now consider bringing forward the purchase of a property or bringing forward the purchase of an investment property because they have this cash sitting here. They’ve probably got a little bit of savings already in place, and the cost of borrowing is so low at the moment.”