Hold or fold? Why smart home owners should keep a cool head when the property market starts to dip

Australia’s median house price is going backwards. Property powerhouse Sydney is languishing after years of rampant growth, Melbourne has flatlined, and Brisbane, Perth and Darwin are in the red.

 

Property owners, especially those who bought in the boom, might be feeling a tad uncomfortable watching clearance rates tumble and price discounting intensify.

But despite a steady stream of anxiety-inducing figures, home owners shouldn’t necessarily be rushing to cash in their homes out of fear of further falls.

Properties can take longer to sell if too many vendors are competing for a limited buyer pool.

Properties can take longer to sell if too many vendors are competing for a limited buyer pool. Photo: iStock

 

For owner-occupiers, experts say lifestyle factors, rather than market movements, are the biggest driver for selling. For investors, the quality of the asset is the key.

 

Know when to hold ’em

 

Those more established in their home ownership journey may have more flexibility around when to trade properties, and could be better placed to ride out price fluctuations, according to Wakelin Property Advisory director Jarrod McCabe.

 

“Discretionary vendors come out when the market is favourable,” he said. “When the market is falling, people who don’t need to sell won’t.”

 

Homes with strong owner-occupier appeal may be more resilient to market movements.

Homes with strong owner-occupier appeal may be more resilient to market movements. Photo: iStock

 

If there is a need to upsize, homeowners shouldn’t automatically assume holding onto their original property at the same time is the best move.

 

“It shouldn’t be a standard practice to try and hold as many properties as possible,” Mr McCabe said. “The key thing to ask is: does the property make a sound investment?”

 

When converting an owner-occupied property to an investment, owners should consider whether it would make a desirable rental property. According to Mr McCabe, large family homes are often less suitable as rentals due to more maintenance and a smaller pool of potential tenants.

 

When the market turns, it’s important for long-term investors to keep a cool head, according to Empower Wealth founder Ben Kingsley.

 

“At the moment, it’s just a paper position, it’s not a realised gain or loss yet,” he said. “If you’re playing the long game, prospects for property still remain good, even if some markets are moving towards a buyer’s market.”

 

“The good properties with owner-occupier appeal are always under competition because they’ve got that high emotional element to them,” he said.

 

…and when to fold ’em

 

Rather than responding to market movements, home owners should consider their reason for selling, according to Mr McCabe.

 

“If it’s a lifestyle perspective – needing to upsize or downsize – there’s going to be personal requirements you’ll need to factor in,” he said.

 

“If you’re a young couple having children and you’re in a one-bedroom apartment, lifestyle is going to weigh heavily on your decision.”

 

Upgraders staying within the same market can afford to be less worried about market conditions, according to Property Planning Australia managing director David Johnston. “The main way to negate what the market is doing is by buying and selling at the same time,” he said.

 

Price falls could even represent a prime opportunity for some savvy sellers to upsize, according to Mr McCabe, who cited the narrowing gap between prices of apartments and entry-level houses as an example.

 

“Apartments have started to perform a little bit stronger, and primarily due to that first home buyer influence.”

 

Weakness in the $3 to $5 million market could also create a chance for owners of mid-market homes to upgrade, according to Mr Johnston. “Counter-intuitively, it might actually work a bit more in the favour of the upgrader.”

 

Sellers of certain properties should be aware of how market conditions could affect their sale, according to Mr Kingsley.

 

“If I was owning a property that was high in supply, I would be a little concerned about the level of demand in those markets and expecting that my selling period would be longer.”

 

Investors looking to sell should look at the health of the asset, according to Mr McCabe, separating broader market conditions from the performance of the property and examining whether the fundamentals of the property have changed.

 

“There will always be down times and flattening times in the market,” he said. “It’s very much a long term asset.”

 

“But if it hasn’t been a strong performing asset, people shouldn’t be afraid to cut their losses and move into a better performing asset.”

 

If a property declines in value more than the market, it may indicate a poor performer, according to Mr Johnston. “I would be questioning the quality of the asset over the long term,” he said. “I would say as soon as you realise, and you’re very confident it’s a poor asset, sell.”

 

Properties that have been held long enough to not affect cash flow may be the exception. “As long as it’s not impacting making another investment or lifestyle decision, it can make sense to hold it.”

 

Source: https://www.domain.com.au