- Competition in parts of the market is currently low, according to Propell Property's Michael Pell.
- Australian property market activity is predicted to pick up when rates are cut, possibly towards the end of this year or early 2025.
- While rates are high, some buyers are seeing value in short term repayment pain rather than paying more for a property later.
Being the contrarian is what one national buyer’s agency is advocating for while the Australian property market dithers.
As Australian housing market interest wanes amidst the heightened cost of borrowing, the rising cost of real estate, and just about every other cost soaring too, Propell Property’s managing director, Michael Pell, is observing the savviest investors making a move.
He posits that the reduced competition is providing a prime stomping ground for those who’ve played a patient waiting game.
Long gone are the red hot housing markets
Pell said that Australian property investor activity has substantially declined over the past two years, following the cooling of some red hot real estate markets.
Fueling the then-crazed buying activity was a combination of grants, cheap borrowing, and some media attention to boot.
“The emergency interest rates during the pandemic resulted in a once-in-a-lifetime property buying frenzy, with owner occupiers and investors bringing forward their purchasing plans to take advantage of the cheap money on offer,” said Pell.
That period when the official cash rate was 0.1% is now long gone, with the interest rate now sitting at 4.35%.
Isn’t the cash rate too high to buy?
Many looking to get a mortgage have indeed felt disheartened by the high interest rate environment, but Pell pointed out there’s another major factor that’s often overlooked:
“Everyone gets caught up in the value of loans increasing of late but, of course, this is merely a reflection of the fact that property prices are much higher than they were a few years ago.”
Michael Pell, Propell Property
Also, while the heightened cost of borrowing has driven some to sell up and either reduce their portfolios or leave property investing altogether, some investors are looking past short-term cash flow considerations due to higher interest rates at present.
“While the total number of investors is down, we’re finding more and more savvy investors are coming to the fore,” Pell told The Property Tribune.
“More and more are saying now is an opportune time to buy because there is less competition and fewer buyers in the marketplace.”
Pell added that while the days of ultra-low interest rates are done, “we now have market conditions that are more stable and suitable – but perhaps not as exciting as they once seemed – which is actually the perfect time for investors to strike, with the most educated ones currently doing so.”
“They have sat out the herd mentality that was prevalent a few years ago and waited patiently for the opportune time to re-enter the market when there are fewer competitors and less overall property hysteria.”
Why aren’t those property investors waiting for rates to drop?
Pell told The Property Tribune that those who are still able to secure finance in the current environment are jumping at the chance to buy due to the dual benefit of low competition and the likelihood of a rate cut towards the end of this year.
“Interest rates will be down in the next six to 12 months, and so to get in now with less competition makes sense.
“If you bought a property at $100,000 under market because there are fewer buyers around, the slightly higher cost of money right now pales in comparison.”
“In the worst case, if it costs you three or four thousand dollars a month, it still makes sense because you’ve spent $100,000 less. You’re still a long way in front,” said Pell.
How long before the window closes?
It is broadly predicted that prices will start soaring again when the cash rates are cut.
Economists are predicting the interest rate falls to be anywhere between late this year to mid next year.
Rate cuts mean borrowing becomes more accessible, thereby driving demand up and subsequently prices, too.
“Prices will increase significantly more when the cost of money comes down,” said Pell.
“The savvy investors are looking to looking to buy now.”
Pell said he believes the current opportunity to buy while competition is low will disappear around the first quarter of 2025.
Could an opportunity be opening up in Melbourne?
In an addendum to prime times to buy, Pell also flagged potential opportunities opening up in the Victorian property market.
Again invoking the idea of the contrarian, Pell said Melbourne has plenty of potential for investors, especially those who can look past the new land tax regime.
“Everyone’s turned off Melbourne and Victoria, but we’re almost doing the opposite of what the herd does,” said Pell.
“We’re looking closely at Melbourne because, with fewer investors in the market, we potentially see huge benefits and huge upside for our investors.
“Thinking about this from a macroeconomic point of view, if fewer investment properties are being created in Melbourne, for example, then there’s more potential for there to be an investor. This is because there are fewer investors, less competition when buying, and less competition when trying to rent the properties or even sell later on.
Pell also highlighted that Melbourne has the largest capital city population in the country and is still the nation’s sports and entertainment capital.
“We think we can get in at some really low prices for our investors and still get strong rental yield and capital growth because they’ll be one of fewer investors in the Melbourne property market, that’s our theory.”
