For Aussies, the worst of the coronavirus looks like it might be passing, but its economic repercussions are still being felt, including in the property sector.
For the would-be property investor, the economic fallout from the crisis comes with pros and cons.
Here’s what you need to know about investing in property post-coronavirus.
Pro - More choice
The economic impact of the coronavirus crisis has resulted in a lot of potential investors and homebuyers dropping out of the market.
For those who are still in a position to buy, it means more choice and more time to look.
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“You can find the right type of property, you can spend your time looking for what's going to be ideally suited to your budget, your requirements, your return on investment and so forth,” says UNO mortgage advisor Paul Sealey.
“The opportunities are wider now because there's less people competing,” he added.
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Con - More risk
As much as more choice and lower valuations mean good news for potential property investors, it’s worth remembering that the reason for this is that the economy has suffered a major shock.
And that comes with risks, in particular that your tenant might lose their job and not be able to pay the rent, putting you in a difficult position with your investment loan repayments. There is also the risk that you could lose your own job or suffer a drop in income, depending on your line of work.
As of mid-June these risks look to be receding, as states around the country lift coronavirus restrictions and Australians get back to work. But no one knows for sure what the long-term economic effects of the coronavirus crisis will be, so a little caution is a good idea.
Pro - Stable prices
The coronavirus crisis has also put a dampener on property valuations – that is what banks and valuers say they are worth – but less so on actual prices, says UNO expert Broker, Kym Moore.
It suggests that properties are holding their intrinsic value and that the property market is actually a lot more stable than might have initially been feared. It could mean that now is a good time to buy as the risk of falls has reduced.
Con - Harder to get finance
It is also harder to get finance in the current environment. Banks are being a lot more cautious because of the risk that property prices might fall further or that people might struggle to meet their loan repayments.
They will want to be doubly sure that your income is stable and your employment is secure.
Lenders have also reduced their loan-to-valuation ratios, that is, the amount they are prepared to lend against each property, based on its valuation. Previously they might have lent 90% of a property’s value to an investor, but now might lend only 85%, for instance.
They are also more likely to want you to have cash in reserve after you’ve bought the property so would be able to cover the rent for several weeks or even up to six months in case your tenant can’t pay.
Pro - Where to go for answers
Different lenders have different policies, so speak to your mortgage advisor about which lender might best suit your own personal financial situation and see if property investment is a good option for you right now.
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