Feeling massive amounts of FOMO because you haven’t bought property? Here are 10 reasons why holding off might be smarter.
1. Housing’s unaffordable.
The Core Logic Housing Affordability Report from December 2016 showed the national price-to-income ratio was 7.2x for houses and 6.4x for units. Investment bank UBS now calculates that it would take 40 years to save a 10 percent deposit for an average Sydney house ($1.2 million) on an average wage ($80,000).
2. You might not get the gains you want.
National house price growth – recorded at 1.9 percent in the quarter to June 2017 – may not continue. Which means you might borrow heavily on a property that won’t have the capital gains you’re expecting.
3. Interest rates might go up.
If they do, that will mean the mortgage repayments you can only just afford now, are no longer affordable.
4. Interest rates might go up.
On the upside, if rates rise, buyers get nervous and experts say prices might fall as much as 10 percent. Combine that with a tightening on lending to investors and an oversupply of new properties in some cities, and waiting for a price correction starts to make sense.
5. Negative gearing is what it says.
If you buy an investment property that loses money every year, you might be able to claim some expenses on tax, but you’ll need to make up the difference out of your own pocket. Can you manage that if you say, lose your job?
6. Dreams can be adjusted.
In Europe, the UK and even in the US some people rent all their lives. If you can re-program your Great Australian Dream and calm your FOMO, you’ll realise that property isn’t the only route to wealth creation.
7. When property is overvalued, invest in shares.
Shares are a flexible way of investing with a much lower entry cost and greater opportunity for diversification.
8. This tax accountant says renting while investing in super adds up.
Renters don’t pay stamp duty, rates, strata fees, repairs and maintenance. Rent might also be lower than your mortgage repayment would be. If you can salary sacrifice the amount you save as a renter into super (staying within your concessional caps of course), the enforced saving and the tax breaks flowing from that could earn you “80% of the gains you make from buying and selling a house over 10 years”.
9. Rents are plateauing.
In cities where there’s an oversupply of units on the horizon (Brisbane, Melbourne, Perth), rental rates may decline. Which makes point 8 above stronger.
10. You can buy into the Dream in other ways.
Consider investing in property trusts (REITs) which are listed managed funds, or other listed housing exposures. But first, do your research.