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Property investors hold out for Spring

Wednesday, 25th August 2010

Warmer weather will combine with other favourable conditions to fuel the appetites of potential property investors, according to Australia's largest independently-owned mortgage broker.

The latest ABS housing finance report saw the value of investment housing loans drop for the first time in four months in June 2010 by a seasonally adjusted 3.6% to $7.3 billion, the lowest value reached since February this year. However, this compared favourably to $6.5 billion in June 2009. Many market commentators say this buyer group has been holding back until the election is over and the traditionally strong spring selling season begins. They won’t have to wait much longer. Mortgage Choice senior corporate affairs manager, Kristy Sheppard said, “According to RP Data, seasonally, Australia typically sees higher than average property activity from September through to November. This year should be no exception despite a possible lag effect from the hung parliament.” “There are already more properties on the market than usual at this time of year, which is good news for prospective investors, as is property prices plateauing in many areas and dropping in some, rental prices increasing, strong population growth continuing, consumer sentiment rising and the sharemarket continuing to be unpredictable.” Housing undersupply is a serious issue in Australia and ABS building approval figures show a fall for a third consecutive month in June to reach the lowest level since August last year. Hence, many investors believe the long term potential of property as a stable asset class is excellent. “With fewer new properties there is bound to be a pick up in rental price growth, which we’ve already seen. Australian Property Monitors’ Rental Market Report for the June 2010 quarter shows from April to June rental prices for houses rose nationally by 0.7%, bringing annual growth to a small but encouraging 3.1%. The unit market was stronger, with rents increasing nationally during the last quarter by 3.5%, bringing the annual growth rate to 4.2%,” Ms Sheppard said. “This bodes well for people who research the property market thoroughly, have a long-term strategy in mind and investigate all their finance options so they make a sound investment decision. “Prospective buyers must be aware that lenders have tightened loan assessment criteria for investors as well as owner occupiers. Many have limited their loan to value ratios to 90% of the purchase price for both buyer groups, with some going even lower. Also, genuine savings are essential, whether in the form of a cash deposit or existing property equity. Both buyer groups will need to plan ahead to satisfy their chosen lender’s requirements. “Preparing for rate movements is also vital to the planning process. The cash rate will probably remain stable for the next couple of months but many lenders are signalling that funding costs may force them to raise borrowing costs independently of the RBA’s rate cycle. “It will be interesting to see how many Australian investors spring into the property market over the next quarter and what effect, if any, lender rate rises will have.”

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