Is this the Worst Year to Invest in Property?

If you’re weighing up the pros and cons of buying property in 2022, then be sure to do your due diligence in risk analysis.

We note that your circumstances are unique, and we don’t offer financial investment advice – that’s not our line of business as your insurance broker. Below we offer some research from various sources to factor in as you look at your risks of buying property.

Here’s a spoiler alert from the property investment adviser, Michael Yardney, who’s considered one of Australia’s most influential. He says there’s actually no good or bad time to invest in property, so this year won’t necessarily be worse than previous years. That assumes you’re looking to the long term, though. Much depends on your circumstances and having:

• A well-thought-out strategic property plan that sets out your goals and how to tick off that list
• The best-fit ownership structures reduce your tax legally and protect your asset, plus

• A solid finance system with a nest egg as a buffer.

And, another consideration is if you’re planning to use the property yourself or lease it. For residential properties, you’re likely to enjoy increasing yields as rents rise nationwide due to the housing shortage.

What’s influencing property prices

The softening – that is, decline – in property prices is due to:

• Inflation, which hit 6.1% in the June quarter and is expected to rise to 7.75% by the end of this year, says the Reserve Bank of Australia

• Surging supply of stock
• Aggressive lender interest rate rises

• Disruption to building activity and population growth, partly due to the pandemic, says KPMG.

Meanwhile, you might be thinking that zoning – how governments regulate the use of land – boosts property prices because they supposedly restrict development. But this article in The Conversation, which delved into two decades of zoning, housing supply and prices across 19 major centres found otherwise.

The risks of buying with a 5% loan

The smaller your deposit, the more likely you’ll have negative equity in the property you’ve bought and owe your lender more than it’s worth. That could happen due to increasing interest rates for lending, inflation as well as slumping house prices in Australia’s capital cities.

In the month to June, house prices decreased across the nation for the first time in two years, according to Domain. To see what’s happening daily and monthly in the main capital cities, check out property data company CoreLogic’s home value index.

Outlook for 2022

Property pundits generally forecast a slump in prices this year, known as a correction, with more bumps expected until late 2023 or the following year, according to realestate.com.au. However, the Australian Financial Review says it may be years before prices reach a new high.

Property investment adviser Michael Yardney suggests there’s a window of opportunity for long-term property investors. He points to low consumer confidence, so there are fewer active buyers in the market. His prediction isn’t uniform across the country. Yardney’s tips for the bright spots are properties in the inner and middle-ring suburbs, such as those undergoing gentrification.

Buying commercial or residential property? We can help with your insurance requirements.

Whether you’re snapping up a commercial or residential property this year, you’ll need to get your insurance cover in order.

For a commercial site, your policy package should include:

• Property damage

• Business interruption

• Public and products liability

And, if you’re looking to buy residential premises, aim for home-and-building contents or landlord building insurance to protect your investment. We can advise you on minimising your risks and can customise best-fit insurance cover.