Things to know about buying property in a high cost region

Published on November 26th, 2020
  Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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The end goal of any property investment is to see the property eventually being able to sustain itself and generate an income for you as the investor. A properties value plays a critical part in you make a return on your investment. However, if you have not taken the time to get the right financing you will be hard pressed for when dwelling values fall and you are forced to sell at a lower price.

Capital city values are falling

Tracking the dwelling values of any property market within Australia is one of the important factors that you need to check as an investor to see if you will be getting your money’s worth. However, recent data released by Corelogic revealed that it is not always the best to invest in regions with expensive properties, especially if you are a bit cash-strapped as an investor.

The data revealed that over the past 12 months leading up to June 2018, dwelling values fell by -0.4% nationally. The most expensive 10% of property in the property markets have taken a hit with a -0.5% decrease in values. Corelogic further revealed that across the combined capital cities dwelling values decreased by -1.1% over the past 12 months.

Sydney had the largest decline of all capital cities when it came to capital cities that felt the pinch in declining dwelling values. Sydney’s values are 4.2% lower compared to other years. However, as most people know, this drop in dwelling values has not been experienced by all property markets.

Affordable 10% continues to grow

Taking your time as an investor to research the various property markets that are in Australia can help you track its performance record from previous years to show you where it is headed. This is a great way of benefiting from your investment. The rookie mistake as an investor is to purchase your first property in an expensive property region, as it will be harder to maintain when the market takes a turn where values drop.

However, investors that were savvy enough to notice that there is a rising trend of people migrating and purchasing property that is affordable are now cashing in. The most affordable 10% of properties have experienced an increase in values by 1.8% and they are continuing to grow. This band of the property market experiences less of an impact when the value falls. The regional markets have experienced an increase of 2.2% over the past years with the most affordable properties gaining confidence in growth by 4.9%. This is higher that the most expensive properties has grown by which is 2.1%.

Your home loan can make or break your investment

Being financially prepared with the right home loan that has a rate that is affordable during cooling periods and periods where dwelling values decline can be a saving grace for investors to better manage their properties. However, without considering the long-term effects of the type of financing and features that come with the loan you choose you could be forced to sell your property at a lower value than what you put in.

Seeing how your finances will play out in the long-term will help you adequately prepare yourself for a home loan that meets your needs. It is also vital to choose a property that is within your financial reach so that you will be able to maintain it even if the rate increases or dwelling value falls.

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This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.

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The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well as others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.

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