Savvy investing in a property downturn

Falling property prices scare people away from the market, driven by fears they’ll pay too much for a house that keeps falling in value.

But while Melbourne is currently in a downturn, the market fundamentals remain strong and it presents an opportunity to buy before the market picks up again.

Instead of agonising over whether or not you’re timing a property purchase perfectly at the bottom of a cycle, it can pay dividends to look longer term and get into the market while others sit things out.

House prices in Melbourne hit a peak in February this year after a pandemic-induced boom or around 17 per cent.

We’ve seen a drop in property values of around 3.6 per cent in the last quarter. Units have dropped in value by the lesser amount of 2 per cent over that same period.

But auction clearance rates remain solid, and right now they are still sitting in the 60s.

History tells us that property returns 11 per cent per annum for investors, so while there’s always the inevitable ups and downs, the long term trend is always up.

One of the main reasons for this is the ever-growing population of cities like Melbourne, which consistently ranks as one of the best cities in the world to live.

Melbourne is expected to soon pass Sydney as the country’s biggest city, forecasted to hit 8 million people by 2050, making the long term capital growth of our property assured.

Rising interest rates and inflation are scaring off a great number of discretionary property buyers, but they will soon be getting back into the thick of the action once they notice interest rates peaking and inflation – our Federal Government’s current self-proclaimed enemy number one – starting to ease.

This is the time strategic property investors can take advantage of all this sitting on hands, armed with the knowledge that the market fundamentals of population growth, a well-planned city layout, solid city infrastructure, thriving culture and a strong state economy mean they could buy a property now they’ll look back on in ten years and know was a bargain.

So if you’re in a good financial position to make a property purchase, being able to accept you might not be hitting the exact bottom of the price fall downturn, because in reality no one knows when that is, could be the key to getting a step ahead of the market and making a really savvy investment.

Property expert Michael Yardney suggests the following four key guidelines if you’re looking to choose something to buy right now while prices fall.

“We believe that 80 per cent of your property’s performance is related to its location (one that outperforms the averages) and 20 per cent or so is related to buying the right property in that location,” he says on his website.

Mr Yardney’s four things to keep in mind are:

  1. Buy a property below its intrinsic value. That means avoiding new off-the-plan property that that come with hefty price tags. Mr Yardney also suggests looking for property that has a high land-to-asset ratio.
  2. Buy in a location that outperforms the Melbourne-wide averages for price growth.
  3. Try to find a dwelling that has something unique, or special about it. Anything with an ‘x’ factor that makes the place stand out from everything else around it.
  4. Aim to purchase a home that can generate capital growth through refurbishment, renovations or redevelopment.


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