Property investment has always been very popular with many families looking to long term value appreciation offered by property in order to fund their retirement. Obviously there is no such thing as a fool proof investment, however over the last several decades of the 20th century those Australians who had continued to invest in property and especially residential property had made a lot of money. So what has changed?
For one thing, many potential borrowers have been significantly affected by job losses and closures of businesses that have been around for decades. This has means that Aussies are needing to find themselves a new avenue for employment. People who used to work in retail, mining and to a smaller extent in manufacturing are looking to re-skill in order to find work.
Every day there are new announcements about large employers closing doors or down-sizing. This has a very serious impact on the outlook of potential borrowers.
Property value drops
Those who did invest in property over the past 5 years are today licking their wounds. Despite rates coming down and marginal recovery in house values, too many people are still sitting on negative equity at worst. At best they have paid their mortgage for 5 years without experiencing any capital appreciation. Therefore potential investors are looking to sell up and reduce debt exposure.
Further drops in interest rates are likely to do little to address this trend. What is needed is a more positive outlook about our economic future
No doc loans discontinued
It used to be very easy to qualify for home loan finance. Pre-GFC it was almost too easy. Many people played with the equity in their assets by redrawing and investing into further property purchases. This was all done in order to benefit from what appeared to be a ‘never-ending’ capital appreciation cycle. Well this cycle has ended as has asset based borrowing. Unless you are a business borrowing for business purposes, you must declare and prove an income. Therefore many previous property buyers and borrowers have walked away.
Loss of interest in negative gearing
What is the point of investing in property unless you can enjoy value appreciation. No one invests purely for the benefit of negative gearing. Over the past 5 years property investment has not really yielded much growth. There was a substantial value drop and then the prices have slowly come back up to where they were some years before. Most investors are worse off financially for having held an investment property over the past 3-5 years than they would have been if they did not buy at all. This is naturally creating a disincentive amongst potential investors from buying further.