IR rises: invest in Brisbane now or wait?

Discussion in 'Property Market Economics' started by OTmg, 24th Apr, 2017.

Join Australia's most dynamic and respected property investment community
  1. OTmg

    OTmg Well-Known Member

    Joined:
    19th Oct, 2016
    Posts:
    74
    Location:
    Scarborough
    Hi guys,

    I'm thinking of buying in Brisbane now but I'm really concerned whether that's really the best decision in the current environment. What worries me are all the out of cycle interest rate rises, APRA restricting lending to investors, tougher serviceability calculators and not allowing buyers to use SMSF for property.

    What do experienced investors think, would you keep investing in property regardless of the above mentioned factors or would you just wait? I suppose no one has a crystal ball, so as long as we can hold it we should invest.

    Please shed some light!
     
    Last edited: 24th Apr, 2017
  2. MTR

    MTR Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    27,786
    Location:
    My World
    If you read between the lines its clear that Brisbane is a fragmented market and the question you need to ask yourself is why? and if you park your money in this market how long will it take before you see some growth?

    Unless you actually buy into a suburb/area that is already moving in Brissy why bother??? Increasing debt while interest rates are rising and no evidence of growth makes little sense, just my opinion.

    The next step would be to research what specific areas/suburbs are moving in Brissy if?..... you need to work this one out, do this and you can make money, take a guess and you may regret this one.


    MTR:)
     
    Last edited: 24th Apr, 2017
    aussieB, larrylarry and OTmg like this.
  3. dabbler

    dabbler Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,572
    Location:
    Sid en e - olympic city
    You have to make your own decisions.

    The lending changes probably hurt the smallest group of buyers the most, those with more than 1IP.

    Things may cool, but they will make things harder to buy, so may be bargains, but without cash and or loan ability, means nil.
     
  4. OTmg

    OTmg Well-Known Member

    Joined:
    19th Oct, 2016
    Posts:
    74
    Location:
    Scarborough
    Wait, so you're saying that OO or the ideal market drivers can't become investors hence in the future there will less and less people with 2+ properties.

    So the people with large portfolios can keep going vs the newbies hit the wall.

    Sorry to try and clarify but the way I understand it is that this tighter lending means that people hit a all much sooner. Have we reached the point where every day mums and dads can't dream of financial freedom through property?

    Do we have to choose between having a child or having a portfolio?

    Please explain!
     
  5. gman65

    gman65 Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    1,802
    Location:
    Brisbane
    Personally, I think Brisbane is more owner-occupier driven rather than investor and speculative investment, so policy targeted towards investors will probably have less impact.

    All the Sydney and Melbourne people who bought in Brisbane for a quick buck may eventually get frustrated and sell in the next couple of years. Whether that is enough to move the market here, hard to say.

    I think Brisbane could surprise when people least expect it. Along with/because of the big slowdown in the NSW economy ..which is coming, but nobody expects that either.
     
    Northboy likes this.
  6. OTmg

    OTmg Well-Known Member

    Joined:
    19th Oct, 2016
    Posts:
    74
    Location:
    Scarborough
    Do you mean frustrated by slow growth?

    Even if for example there is magical high supply (from frustrated investors) OO cant buy a PPOR or a first IP because the banks aren't lending... So then who is buying when there is increase in supply?

    ....possibly investors who have yet to hit the wall..

    Don't know if Im being too extreme but sort of makes sense.

    My 2 cents..
     
  7. Gockie

    Gockie Life is good ☺️ Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    14,742
    Location:
    Sydney
    Banks are lending... but just not to people with middle sized portfolios. Now re-think about everything you've said in this thread with that in mind.
     
    HUGH72 and gman65 like this.
  8. OTmg

    OTmg Well-Known Member

    Joined:
    19th Oct, 2016
    Posts:
    74
    Location:
    Scarborough
    So banks lend to someone with either zero properties or 'x' number (more than middle size)

    I assume middle size is hmm.. 3-4? and 1.3M in debt?

    Not trying to sound smart or anything, I actually have little idea of what a middle size portfolio is. I think a big portfolio is 10+ properties. But that's not based on any info just a guestimate.
     
  9. Barny

    Barny Well-Known Member

    Joined:
    16th Oct, 2015
    Posts:
    3,189
    Location:
    Australia
    Suppose you could wait and see? Keep paying down debt to increase cashflow and ownership, and reborrow when you need too...if the lending rules don't change again that is as you know.

    Interesting fun facts for today, Brisbane hasn't seen double digit growth for over 10 years.
    Full time Employment is on a slight upswing. Slight, let's hope it continues.

    Every investor will give you different advice dependant on their own current scenario, eg, I have enough property for me so I would say wait and see, pay down some debt whilst rates are low. Or invest in shares or work on your job/business to increase your borrowing capacity.
    You already see the changes in play, it's having an affect on us all, and it will get worse before it gets better.
     
    Anthony Brew, MTR, OTmg and 1 other person like this.
  10. gman65

    gman65 Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    1,802
    Location:
    Brisbane
    Yes. Seeing there money presently going further elsewhere, re-applying for finance and told no dice, or being shifted to P+I and working out things are going to get pretty damn tight. When it comes down to a choice of keeping their under performers, or sticking with what they know, it would probably be BNE they would sell first. LIFO and all of that.

    Banks are lending, and more than happy to lend to owner occupiers. No speed limits there, and no investor premiums. Plenty of owner occupiers out there happy to buy, as they have been in the right OO suburbs for the last few years, pushing prices up steadily. Some of the crap may be hard to shift though in such an environment, the ones that OO passed over..
     
    OTmg likes this.
  11. OTmg

    OTmg Well-Known Member

    Joined:
    19th Oct, 2016
    Posts:
    74
    Location:
    Scarborough
    True, 'what they know' are their Sydney investments? I suppose they'll sell-up in BNE and buy 1M in Sydney?

    Not sure hey, but maybe. 1M for 1 property is a bit much. So don't know how many people can afford to 'sell up'

    But an OO can only have 1 PPOR.

    Also even for a first home buyer now it is harder to borrow and I think it might get worse. I thought the last generation had it easier to borrow than these days. Like you need less deposit and a job that doesn't pay as much.

    Could be wrong but
     
  12. Anthony Brew

    Anthony Brew Well-Known Member

    Joined:
    18th Feb, 2017
    Posts:
    1,176
    Location:
    Australia
    What do you mean the banks are not lending to people who want to buy a PPOR or first IP?
    It seems that the changes are mainly on serviceability criteria for borrowing 2+
     
    gman65 and OTmg like this.
  13. OTmg

    OTmg Well-Known Member

    Joined:
    19th Oct, 2016
    Posts:
    74
    Location:
    Scarborough
    Well in Perth if I was on 55k FTE, given my HECS debt (35-100k), I can only borrow about 350k. I can buy a 1x1 apartment or unit if I have 20k saved.

    But most people dont have 20kish saved at 25 years old. So we have to live with our parents until we have a partner or I've got 20k. So basically until im ****ing 35...

    My brothers are 24 and 29 they have 5k in savings combined and lived at home up until recently. They travel twice a yr and feel comfortable not buying luxury but going out like most 20 somethings.

    Perth's most affordable suburbs within 10km of CBD revealed

    Say Brisbane .Brisbane’s most affordable suburbs for houses and units.

    Dont even mention Melbourne or Sydney

    What is the world coming to?

    In order for a student to save they miss out on holidays then, they get a mortgage and need to pay it off... So also less or no holidays.

    Please tell me Im wrong!!
     
    Last edited: 25th Apr, 2017
    Anthony Brew likes this.
  14. Gockie

    Gockie Life is good ☺️ Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    14,742
    Location:
    Sydney
    I was casually employed in high school and uni. 20k of savings accumulated during those years would not have been unachievable.
     
  15. LIDM

    LIDM Well-Known Member

    Joined:
    25th Sep, 2016
    Posts:
    127
    Location:
    Melbourne
    OTmg you can save 20k in a year living at home with 55k pa income. I know many 25 year olds (and much younger) who have.

    It depends on your priorities of course and your definition of 'luxury'! I would say the following are luxuries if you are serious about saving: holidays twice a year, gadgets like iPad/iPhone/GoPro, Netflix, expensive phone plans, nice car, football/concert tickets...

    Get yourself a budget and calculate your living expenses and your monthly savings target. Note down every expense every day in it. And watch your savings grow.

    ---

    I'm in the same position as OP, looking to purchase first IP after waiting for the last couple of years, there is so much uncertainty and prices are very high. It is a very real possibility that over the next 10 yrs prices won't move much. However you are not buying a city, you are buying a house in a street in a suburb in a city :) so property selection is as important now as it ever has been.
     
  16. Gockie

    Gockie Life is good ☺️ Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    14,742
    Location:
    Sydney
    Ohhh.. great first post @LIDM. Welcome to the forum. :)
     
  17. Creamy

    Creamy Well-Known Member

    Joined:
    27th Aug, 2015
    Posts:
    105
    Location:
    VIC.
    You're wrong. I'm 25. Throughout 17-22, I saved about 40k through casual jobs while still at uni while living with parents. My first entry level job at 52k, I saved 20k that year. Still went on holidays. Still making extra contributions to super. Also have HECS debt.

    If you want a property, then you need to make sacrifices. You also need savings discipline. If your going out was anything like mine, I spent around $25 per meal each weekend. Not to mention the drinking. I compensated the eating expense with $0 in transport (cycle commute) and always bringing my own lunches during the week.

    I feel pretty confident in saying that most 20 somethings complaining about affordability have a spending problem, lack savings discipline and possibly lack personal drive and ambition in pursuing higher or additional incomes. Get used to delayed gratification.

    I have a mortgage now, renting as well, have no problems with money. Holidays booked.
     
  18. Anthony Brew

    Anthony Brew Well-Known Member

    Joined:
    18th Feb, 2017
    Posts:
    1,176
    Location:
    Australia
    Oh right

    Yea you are right that if your pre-APRA loan limit was around the borderline cost of a single purchase, then the post-APRA limit will be less and be a problem.

    And yea 350k is definitely very difficult. your choice is limited to going even further out from a CBD, which I also would not be so comfortable with since there is more of a chance for it to have lower growth.

    Sometimes your situation is limiting and you just can't do much. I was in an unstable job for about 5 years, so the bank simply would not lend me money for my first purchase. All I could do was just keep saving until I had an enormous deposit of 65% of the price of a property. Missed out on a lot of growth, but sometimes you are limited by the situation and can just do the best you can for now - and hopefully working towards a better situation where you can do better after that - such as being a student learning a marketable skill like you are.

    By the way, it is my opinion that once someone buys their first property, they should be saving as much as they possibly can for the first 3-4 years because the benefit is astronomical. Here is an explanation with the maths. Trying to live on the minimum and not going on holidays and even getting a second job one day per week are all very reasonable when you understand the maths and realise you get a 300-400% risk free profit on every dollar you earn (over and above the normal loan repayments) during those first 3-4 years of your first property. You will never in your life again come across a guaranteed risk free profit of 300-400%, and it seems crazy not to take advantage of it. And even though it sounds like such a long time, in the long term it is only 3-4 years out of the 60 years remaining in your life, and when you understand the effect of compounding, it will leave you with close to double your wealth by the time you retire even though it was only sacrificing 1/15th of the time.
    I do understand though, that people rarely want to sacrifice quality of life - just thought I would mention it as an option in case you were unaware.
     
    OTmg, adam duckworth and paulF like this.
  19. Anthony Brew

    Anthony Brew Well-Known Member

    Joined:
    18th Feb, 2017
    Posts:
    1,176
    Location:
    Australia
    I agree - provided the person is not required to contribute to the household income.
    Her family may require help with household expenses, in which case it is not the same as you or me who had a job when casually employed and all the income was left for us to do as we pleased while the parents took care of the house we lived in and the all the bills. I don't know if this is the case though - just mentioning that not all of us are in the same situation and this would well be a valid reason why saving money is almost impossible on 55k.
     
    OTmg likes this.
  20. OTmg

    OTmg Well-Known Member

    Joined:
    19th Oct, 2016
    Posts:
    74
    Location:
    Scarborough
    Personally I wouldnt be able to invest if I hadnt saved in my early 20s. But can you buy IP2?...
     

Build Passive Income WITHOUT Dropping $15K On Buyers Agents Each Time! Helping People Achieve PASSIVE INCOME Using Our Unique Data-Driven System, So You Can Confidently Buy Top 5% Growth & Cashflow Property, Anywhere In Australia