How to read the Australian property market (2/2)

Falling Off The Plan Settlement rates

A property valuation boom always leads to a development boom. As values rise, property developers see higher prices as a great opportunity to cash in on a strong market.

Like other investors, developers understand that property does go through cycles of peaks and troughs and the key is to get your timing right. It’s all about locking in buyers early when they’re keen to snap of anything that’s available.

That’s why so many developers start selling their projects off-the-plan before they even start construction.

It locks buyers in early, and the 10 per cent deposit they lodge can be a key component in securing construction finance for the entire project.

Property buyers usually need at least a 10 per cent deposit to buy a property. Picture: Supplied

But a lot can happen between putting down the deposit and having to pay the

remaining 90 per cent of the property up to three years later.

Markets can turn down, banks can tighten their lending criteria and an oversupply of stock can come onto the market at the same time.

That’s the fear of some for Sydney and Melbourne over the next few months.

A number of these off-the-plan projects started three years ago during the boom are about to complete.

If a high number of the original buyers can’t settle the purchase then it could be a recipe for real trouble. The ripple effect can be devastating for market sentiment.

So be aware.

Rising vacancy rates

If rental vacancy rates start to rise significantly it means investors are not getting a return and could be forced to sell at lower prices.

The investment property market is big … particularly in Sydney and Melbourne.

And many of those properties are negatively geared.

If rental income dries up, many of those investors could be forced to sell because they need the income to meet the loan repayments.

Or they’ll need to lower rents to attract tenants.

Either way, it puts pressure on falling property values.

 

by David and Libby Koch, News Corp Australia Network

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