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Lending has Tightened
We've been talking for months about lending policy and the use of macro-prudential tools to tighten the rate of lending, particularly in relation to investors. In a swift move, Bank West were first to move a fortnight ago with a surprisingly restrictive move - cutting LVR's from 95% to 80% for investment lending. This won't be a solo case - other banks will follow suit.
So what does this mean for investors? Before we all start to panic, it's good to remember that MOST investors try to keep their initial Loan to Value Ratio (LVR) at 80% anyway. A sophisticated and repeat investor will most likely fund 25% of the purchase from equity in another property, and 80% from the security of the newly purchased property. In doing so, the borrower avoids Mortgage Insurance (in most Full-Doc residential property purchase cases), and maximises their tax deductability position by financing 105% of the purchase.
Investors who require lending above 80% are either keen to invest and don't have 25% in equity or savings, OR they are maximising their ability to borrow in this low interest rate environment and are buying multiple properties (as opposed to one). It is THIS type of activity which is speculated to be fuelling a major part of our current property run.
The future doesn't present doom and gloom, but merely a slowdown in the rate of investment lending, particularly at the higher LVR end. Home buyers, upgraders and sophisticated investors are continuing to buy; and without any reason in immediate sight for lending rates to increase, we are still confident that the property market will continue to offer strong capital growth to investors well into 2016.
And while opinion around affordability continues, this March 2015 chart below highlights some of the opportunities which STILL exist within the 5-10km radius for home buyers and investors.
*Chart sourced from REIV, radii added by us
Cate's recent article on Melbourne's growth (and her top ten picks for 2015 outperformance growth) featured on Smart Property Online. Some of the strongest performing Melbourne suburbs experienced growth eclipsing 12% for one quarter!
Property investing has to be for the long term; after all, the entry and exit costs are prohibitive for quick profits. As I say to every prospective investor:
You only need to get four things right on a purchase for that property to be a successful buy;
1. Genuine, sustained growth drivers
2. The right rental yield (based on your own personal required cashflows)
3. Tight vacancy rates
4. A good quality tenant pool
Simple, but not easy.
Cate's interview with Kevin Turner shone a light on what elements some renovators get wrong.
Cate's article on " Sky High Vacancies" and some of the risks associated with buying Off the Plan was published by Smart Proprety Online this month.
The three case studies below are just some of our favourite May acquisitions for our clients. All three have the same thing in common from last month - they are all off-market purchases. For the month of May we continued with our strong record of off-markets thanks to some valued agent relationships.
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Two lovely country-based clients of ours had missed out twice at auction and we were determined not to see them suffer a third disappointment. We nagged all of the local agents for off-market finds and pounced on this fantastic townhouse in Newport, securing it for $575,000 within just days.
They can now look forward to 4%+ rental returns on their asset, plus all the growth that Newport has to offer. |
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One of our loyal clients decided after a successful mission in Brunswick West just two months ago that he was keen to have more Brunswick in his portfolio! This brief however was tougher. We had to find him a 2BR unit sub-$400K and it had to have a nicely refurbished interior, as it was an SMSF purchase. What's more, we needed a car space on the same title. This $390K off-market was it!
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One of our most exciting tenant-inspired negotiations was this beautifully renovated unit in Moonee Ponds.
Not wanting to face a lease-break, the tenant stood firm ... enabling us to secure the property on our terms for a lower price than our competing buyer could offer. Our Spotlight story highlighted some of the surprises that the world of real estate can deliver, and proved that tenants can play a major role in the sucess of a sale.
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