The housing market changes faster and generally more frequently than one would expect, but in the past few years the problems have started to reoccur.
A persistent challenge in the property industry has been, for the last two years, a low supply of listings. Due to a combination of factors, people are choosing to hold onto their property longer, and new construction hasn’t significantly increased in the past few years.
Compared with similar periods in 2019, CoreLogic and Australian Broadcasting Service market observers note that Melbourne housing stock on offer is down by 14 per cent.
These raise questions about whether this trend will go on and how low the volume of housing stock will go, but doubt about the future path of interest rates, the duration of the rental crisis and how the country might recover from a global slowdown are only some of the factors that investors in particular need to be aware of.
Whether it’s a projection that will persist for the rest of the year and well into the future or only a moment in time that’s par for the course of an ever-changing housing market, your property investment is subject to how the market is moving, and supply affects it considerably.
Why should you be concerned about low property stock?
Across Melbourne, low property supply troubles abound. Owing to this, there are few new listings on the market as of June 2023:
- 167 in all of southeast,
- 91 in the outer east, and only
- 30 in the inner east.
This means that at every auction there are bound to be at most four bidders for the same listing out of multiple inquiries, which continues to drive up the price of property.
Real Estate Institute of Australia national president Hayden Groves has also observed that sellers may be holding onto their properties because they’re concerned about being unable to find a property that suits their needs, especially since there’s a related crisis in the rental market that keeps them from taking out a six to twelve-month lease while they seek out the right home.
The market is experiencing a record shortage, and investors need to be prepared for demand to stay unrelenting as conditions continue the same way. While construction remains costly, the low supply which initially would have been a boon has other effects investors will eventually feel, like a lack of suitable areas for them to rent or few properties to invest in.
3 things property investors need to consider with low property stock before selling or upsizing
Confronted by the housing supply challenge and the shrunken rental market, investors need to weigh their options carefully. Before arriving at your decision, you must be aware of what will likely characterise the market and what this could mean for your prospects.
- Fewer homes mean less competition
You’re going to sift through more inquiries than you probably initially expected if you decide to sell now, considering that demand stays consistently high with low property stock.
As many as 100 inquiries are now routinely placed on even the smallest properties, only because buyers are keen to get out of renting. In Melbourne, many people just want to get their name on a title, so they’re fine with compromising on some of the features they once deemed as non-negotiable elements for their property needs.
People aim to buy because they’re tired of having to pay rent, and even so, don’t want to move into a property only to find out 12 months later they need to make space for the next renters. Given these conditions property investors need to be mindful of how your plans will change if you end up being the only new listing in your area.
- There are more costs when selling
Investors are withdrawing from the market because of higher taxes and new regulatory costs, so in the event you decide that you decide to put your investment property on the market, you also face additional expenses.
Depending on the state, the government has implemented specific additional taxes on property investors. Aside from this, there are constraints set by the Foreign Investment Review Board (FIRB) as well as diplomatic disputes that have worsened conditions that contribute to existing housing challenges.
If these costs are secondary to what you see as a good time to sell, then you still need to consider other crucial elements around selling. When you’re letting go of property, even in a low-supply market, you need to evaluate the state of your investment and check if:
- Your property needs extensive repairs: it may not be the most effective use of your time and capital if your investment property needs more than minor DIY work,
- Maintenance and operation are more of a hassle now: your life may have been able to allow you the headspace to manage your property and your affairs before, but things could change and it may be more troublesome than when it started, or
- You have substantial property equity: when you get into the market at an earlier time with different economic conditions, you may now be able to use that equity as a security with banks.
It’s crucial to assess whether you’re prepared to take on the additional costs and if you’re genuinely interested in selling a property before you move forward.
- Renters may be staying for much longer
With so few homes available for purchase, many buyers may resort to renting the properties they need for a longer time as they wait for conditions to improve. As an investor, you may have purchased your property for short-term agreements, but the saturated housing market may leave you with little choice but to adjust to long-term leases.
Catering to longer contracts comes with its benefits and misgivings. Long-term rental property investments, or those held for more than five years, can be characterised by steady demand, less risk of turnover and cheaper maintenance costs, but are tied by fixed rental rates and less flexibility in the event an investor needs the property.
With so few new listings around, it can be exciting to be in a seller’s market, but before you put your property on the market, make sure you understand the conditions around it. Contact one of our seasoned real estate agents and figure out what can get you the best return on your property investment.