Keep calm and buy a home
It’s my experience that some topics or ideas relating to the Australian property market can become overblown, or sensationalised. I believe that when thinking about real estate, it’s important to keep a level head and maintain clear thinking, instead of becoming too emotionally involved. Below are some of my thoughts on topics that the media has focussed on recently.
Accessing your superannuation to buy your first home
There have been recent murmurings about the possibility of allowing first home buyers to access their super in order to help with the purchase of real estate. While that may sound like a nice idea, I believe that great caution should be exercised when looking to change Australia’s superannuation scheme. Superannuation was put in place to give protection to people at the end of their working life. Buying a property now through a superannuation fund may mean that a first home buyer could get a capital gain on their purchase; however, real estate is a cyclical market, and it experiences upswings and downswings. This means that people could be adding unnecessary risk to their superannuation portfolio by using it to buy their first home. If the market were to change, it is possible that those who had used their super to buy into the market may find themselves in trouble. Superannuation has a valued place in Australia, but I do not think that it includes buying owner-occupied real estate.
Interest rates are now incredibly low. The Reserve Bank of Australia’s rate cut at the beginning of the year, doubtlessly eased mortgage repayment stress for many people. Additionally, there is talk about further cuts later in the year. But low rates can’t last forever, and rates will almost definitely rise at some point in the future. I would therefore advocate that borrowers consider locking in a portion of their mortgage at the current rate. By doing this, borrowers can lock in at least a degree of certainty about future repayments, and reduce the risk of being fully affected by possible rate increases in the future.
I also believe that people should exercise caution when budgeting and determining how much they can afford to borrow. The current low rates may provide people with the temptation to borrow more than they can afford if rates were to increase. For this reason, it might be an idea to factor increased rates into your budget, instead of just planning around current rates. This may give you a better chance of surviving financially when rates do eventually rise.
Finally, many Australians are also using the current low rates to create a ‘buffer zone’ in their mortgages, by continuing their original higher repayments. This can be another smart tactic to ensure you are as prepared as possible in case of an emergency, or if rates rise again.
Under and over quoting
Accusations have been made recently, that real estate agents have knowingly misrepresented the value of a house. This may have been the case, but I believe that it can be quite difficult for agents to accurately quote the price of a house. This is particularly true in certain suburbs, where there is low supply and high demand. When a house is taken to auction, what may have seemed like a reasonable price is quickly surpassed by particularly active bidding, and the property is sold at a price which is much higher than anyone would have expected.
The fact is, the market sets prices, not real estate agents, and agents themselves are often just as shocked as everybody else to see some properties sell at such high prices. A real estate agent cannot hold back a booming market, or a tightening market. However, the government has an important role to play in preventing agents from intentionally flouting the law.
After two and a half years of strong price growth in the residential property market, it’s only natural that the question of affordability would be raised. Capital city house prices have seen the strongest gains, with Sydney and Melbourne leading the pack. However, there are still many opportunities for first home buyers to enter the market.
By thinking creatively, I believe that many potential first home buyers can achieve the dream of owning a property. This could mean looking further out into the suburban areas rather than close to the CBD in order to buy – buying where affordable, but renting in a desired location. In this way, more Australians may be able to enter the property market, without having to pay the purchasing price of their desired location.
Charles Tarbey is the chairman and owner of Century 21 Australasia.