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Articles by Salesh Chand

How the current market is affecting property investors

AUTHOR: Salesh Chand

POSTED: 13 December 2021

With new tax rules for residential rental properties and stricter regulations for the banks, the market is a different beast for property investors to deal with compared to what it was 6-12 months ago.

Here are my observations:

Credit is tight. The banks have new rules that they must comply with, and they are required to verify the information borrowers give them. This means it is taking much longer to process loan applications.
With new restrictions on how much low-deposit lending they are allowed to provide, the banks have been withdrawing some preapprovals or not renewing preapprovals once expired.
Investors need to have finance approved for the specific property in question before making an unconditional offer or bidding at auction. Don’t go to auction or make unconditional offers unless your finance is confirmed as approved, or you may find you can’t settle the purchase.

Because the market has been so hot, and people are so desperate for homes, there have been many instances of buyers purchasing without even looking at properties and without preapproval. As a consequence, some of them have been unable to settle because the bank won’t advance the funds as they don’t consider the buyer and/or the property itself meet their criteria. This comes with all sorts of problems, including forfeiture of deposit, interest payable to the seller while they remarket the property, any loss the vendor suffers if they later sell for a lower price, plus legal, selling and holding costs.

You must ensure that the property has its code compliance certificate (CCC) because the bank will check. If there is no CCC, your finance will be rejected.
The test interest rates banks use to assess whether a borrower qualifies for finance are much higher than the actual interest rates you will be charged.
As part of their assessment, the bank will look at your past three months of bank statements. These need to be clean, or you are unlikely to have a loan approved. The banks are looking for evidence of imprudent purchases, including frequent takeaways, impulse buying, and gambling. Don’t withdraw cash from ATMs near casinos or pokie machines, as the bank will assume you are gambling.
Because of all of the above, a significant portion of borrowers – up to 20% by some estimates – will likely go to non-bank lenders. While second tier lenders have more lenient criteria, there is a greater cost to the borrower (higher interest and loan fees).
The new tax rules denying interest deductions are hurting smaller ‘mum and dad’ property investors whose reduced cashflow means they will struggle to keep up with their mortgage payments, especially with increasing interest rates. So some of them are already starting to sell. This has resulted in cashed-up investors snapping up deals and negotiating hard because they know people are in trouble.
Investors with cash are active in the market and hunting for properties, particularly land banking or cash flow assets.
People who don’t need to sell will likely hold on to stock.
The property market is starting to change. What was $1m went up to $1.5m after the first Covid lockdown with the extraordinary demand for property and lack of supply. I expect the price of such an asset to settle back down to about $1.2m to $1.3m, i.e. where it technically should have been without the interruption of Covid. Long-term, values on average will keep going up but will experience fluctuations along the way as part of typical property cycles, with prices stagnating or even dropping slightly for shorter periods of time. So if you can hold on long term, relax. Look at property as an investment for 10 years plus, not 1-2 years.

If you’d like to see examples of deals that active property investors are currently doing in this market, have a look at the Property Investment & Education Webinar I presented in November – it is free to watch.

And keep an eye on our Tax Changes webpage for updates on the new tax rules.

Wishing you a happy festive season and property investing success in 2022.

Request a Meeting

Salesh Chand
Partner and Director of Business Services

09 522-7955

[email protected]

© Gilligan Rowe & Associates LP

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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

Comments

Testimonials

Hi Salesh, I just wanted to send you an email on behalf of GRA to say how fantastic we have found your company to date. As you know, Ben and I joined GRA a couple of months ago and have just found you so amazingly helpful in getting our new property set up correctly and sorted out. We have what I would consider a rather complicated structure as a result and it’s a fantastic feeling to know that we are getting everything done in the best way possible. We have just had approval to put a minor dwelling on the property which will make a massive difference in terms of cash flow and obviously value, something we would never have even thought of without GRA and which we are very excited about. During the buying process we attended a seminar with Matthew and from the outset thought he was fab. We therein signed up for property school and found this nothing short of fantastic. The content was relevant, up to date and comprehensive, but more importantly it was taught in a way that we could actually understand and really get value out of. I wanted to mention also, that everybody GRA have recommended to us has been just so efficient and absolute masters at what they do. A wonderful network of people that we feel very lucky to now be able to call on. From Kris Pederson and Bryan Rist who put our mortgage together to the insurance guys they then referred us to, I’m super impressed. Within GRA, Ellery has probably turned things around for us faster than I’ve ever known before, something which we appreciated so very much when it came to crunch time. She’s always a pleasure to deal with and again, we’re stoked. We’ve just settled on the property today and are about to go and get the keys. I’m pretty pumped and hence this email is probably rather excitable. So, a massive thank you to you Salesh, the partners for such a fabulous 6 weeks at property school and everyone at GRA for their help. May this be the start of our property empire. Thanks again, - A & B - July 2015

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