House buyers tipped to come out on top in the property market

House buyers with plans to hold their future properties long-term may be in a strong position to nab a bargain in the property market despite COVID-19, some experts say.

Those who are looking to purchase a house to live in long-term may find themselves with the upper hand when negotiating prices, according to RiskWise Property Research chief executive officer Doron Peleg.

This was particularly the case in Sydney, where the average holding period for houses is 12.2 years, RiskWise figures showed. About three quarters of houses in Sydney are owned by owner-occupiers.

“This means owner-occupiers with secure jobs and no serviceability issues are not impacted by short-term market movements, unless they need to refinance,” Mr Peleg said.

Pete Wargent, co-founder of buyer’s agency Buyers Buyers, said anyone considering buying property in this market would likely come out on top if they stick to playing the long game, as prices are not widely expected to jump in the short term.

“In the current market, the supply versus demand is in far better shape for houses and family-appropriate accommodation than it is for inner-city units and apartments,” he said.

“If you negotiate well, you can secure a very good property and manage the risk of lower prices in the short term by simply paying less.”

Mr Wargent added that while purchasing a property in these times can be intimidating for both experienced and first home buyers, doing thorough research is one of the most important pieces of preparation a buyer can do in this market.

“Understanding the nuances of the local market and negotiating accordingly on price and terms is the key,” he said.

Government incentives and low interest rates give buyers a leg up

On top of this, government incentives, including the First Home Buyers Deposit Scheme and stamp duty exemptions, are expected to help give home buyers, particularly those purchasing for the first time, a leg up in the market.

Record-low interest rates are also helping property buyers pay less on their mortgage. 

The lowest variable rate on offer is 1.89 per cent, from Reduce Home Loans, though it is only available to those with up to 60 per cent loan-to-value-ratio (LVR). 

The lowest two-year and three-year fixed rates are both at 1.99 per cent, offered by:

• Community First Credit Union (two-year)
• Illawarra Credit Union (two-year)
• Bank First (three-year)
• Hume Bank (three-year) 

“Lower interest rates also materially improve housing affordability in terms of serviceability ratio, i.e. the monthly repayments for any price point are simply lower,” Mr Peleg said.

“What this all means is now is the time to buy if you are a first home buyer or an owner-occupier as this current slowdown in the property market is only temporary, with houses in popular areas likely to experience solid capital growth in the medium to long term.

“Once the COVID-19 issue is resolved, most likely in 2021, the traditional connection between low interest rates and increase in dwelling prices is likely to take place.”

However, for property investors buying apartments that may be unsuitable for renting families, Mr Peleg said they could be “taking an enormous gamble” in this environment, as risks to cash flow and equity are tipped to rise. The stability of rental income will be a key concern for investors who rely on this to pay their mortgages and other property-related costs, he said.

CoreLogic’s head of research Tim Lawless said the prices of inner-city apartments could see further falls.

“With high supply and weak rental conditions likely to persist, at least until international borders re-open, inner city, investor-owned unit values are likely to remain under significant downside risk,” he said.

Sydney property prices positive over the long term

Property values in Sydney fell by 3.3 per cent in the three months to October, but remained positive at 3.1 per cent over the year, the latest CoreLogic figures showed. 

House prices in Sydney jumped by 8.7 per cent in the past 12 months, compared with units which saw slower growth of 5.4 per cent.

Demand for houses in the Harbour City has been strong which, combined with a shortage of houses, has delivered double-digit capital growth in the past five years, according to RiseWise. This is despite the property market experiencing:

• credit restrictions from the Australian Prudential Regulation Authority (APRA),
• closer scrutiny of mortgage applications as a result of the Financial Services Royal Commission, and
• falling prices until mid-2019.

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