Property Prices and Mortgage Rates in Australia: Outlook for 2023
After enjoying a powerful boom in the aftermath of the Covid-19 pandemic, the Australian real estate market braces for declining prices and higher mortgage rates. That’s largely due to the interest rate hiking cycle initiated by the Reserve Bank of Australia (RBA) in May 2022. Since then, the housing market has witnessed a sharp price decline, dropping by 8.4% from May 2022 to January 2023.
Amidst the global fears of recession, more interest hikes are expected through the first half of the year, which could further drop the prices. The price downturn has also hit the sales volumes, as new listings have dropped dramatically.
So where is the market headed in 2023, and when can we expect the prices to hit bottom before they start rising again? We can find some answers in PropTrack’s Property Outlook Market Report for 2023.
Property Market Projections
According to PropTrack’s report, most Australian cities are expected to experience a sharp price decline, more so for houses than units. The prices are estimated to drop by 5% to 11%, with the highest declines projected for Sydney, Melbourne, and Brisbane.
In comparison, nationally, the prices fell by 2.3% in 2022. So it’s clear that the impact of RBA’s current interest rate hike cycle will be felt more acutely in the current year.
Although prices are expected to drop further, the market may have passed the peak month-on-month price decline rate. In January 2023, CoreLogic’s Daily Home Value Index (HVI) dropped by a percentage. This indicates that the pace of housing price decline is likely slowing down, and we may not see any surprising high drops in the coming months. That said, the prices will continue their downslide through the year.
Interest Rate Hikes
As for the interest rate, experts expect smaller hikes from the RBA for the next couple of months, but a pause in the cycle is nearer. The interest rate reached an 11-year high after the recent 10th consecutive hike, bringing the rate to 3.6%.
Further increases are expected in the following months as inflationary pressures are still high and the fear of recession is strong.
The interest rate increases have clearly made mortgages expensive for new home buyers. But the impact is also felt by those on variable mortgage rates and those ending a fixed rate term. Refinancing a home in the current situation can be expensive for homeowners despite price declines.
Is It Really That Bad?
2023 is clearly looking like the trough year after the prices peaked in 2021, but the price increases during the pandemic have added significant value for properties. In other words, despite the continued price downturn, houses are still more valuable than before the pandemic.
The PropTrack report says renting is cheaper than paying the mortgage at the current rates. This is surprising because rents across major Australian cities have skyrocketed in the last year.
The low property prices present opportunities for investors who can afford to stick around for the long haul. However, the higher interest rates aren’t making for very favorable conditions.
SMSF Lending is Growing: Here’s What You Need to Know - DDP Property Finance
SMSF or self-managed super funds are becoming increasingly popular, owing to better SMSF products from banks and non-banks. More importantly, this lending type has the lowest default rates compared to other loan instruments. However, it’s still somewhat complicated to understand and difficult to manage.
Employees and business owners are using loans against their superannuation to invest in residential and commercial properties. Thanks to increased rents across Australia, there’s a renewed interest in real estate investment, and SMSF lending presents a unique opportunity.
In this article, we’ll discuss what an SMSF loan is, how it works, and why it’s becoming a popular option for Australians looking to invest in properties.
What is an SMSF Loan?
A self-managed super fund (SMSF) is a fund commonly used to save for retirement. Unlike other types of funds, the members of an SMSF are also its trustees. As a result, they have control over how the savings are invested.
This also means that the members of the SMSF are responsible for complying with the superannuation laws and applicable tax regulations.
An SMSF loan allows members to use their retirement savings to invest in a property by using the SMSF as a deposit. It’s similar to a home loan, except the loan is based on your SMSF contributions. This gives people a chance to buy real estate even if they don’t have cash upfront to do so.
How Does It Work?
SMSF loans for property work differently from a traditional home loan, which makes it a complicated financial product. An SMSF loan for a property is based on the funds in an SMSF. However, several conditions apply in this scenario.
The property should strictly provide retirement benefits to the members of the SMSF.
A member or a party related to them cannot reside on the property.
A member or a party related to them cannot rent the property.
The property must not be purchased from a party related to the member.
Also, any capital gains or rental income from the property is reinvested into the super fund. Such earnings from the property would only be available after retirement.
These strict conditions apply because the SMSF is strictly designed for retirement benefits. This is why SMSF are also eligible for super fund tax concessions. So any loan against it, or property purchased with it, must also be for retirement purposes.
Violations of these conditions can result in penalties and legal actions. Also, it’s worth mentioning that refinancing an SMSF loan can be a lot more complicated than home loans, and many SMSF lenders may not offer the refinance option.
Why is SMSF Lending Becoming Popular?
Even though the last couple of years have seen global economic downturns and the housing market boom in Australia is slowing down, real estate remains a popular investment area. However, in the case of SMSF loans for property, the growing demand of borrowers can be attributed to the growing rent rates in major Australian cities and even rural areas.
An SMSF loan for a property is not the most convenient option because of the strict conditions and complex processes. However, it allows the self-managed super to be used for a high returns investment.
As SMSF is private and self-managed, unlike a retail or industry super fund, the members of the fund are responsible for managing it and investing it. It can be challenging to invest these funds in lucrative schemes. While many SMSF members invest in shares, real estate is emerging as the next popular trend.
Several factors for this renewed interest in purchasing real estate with SMSF loans exist. Aside from the opportunity of increasing the SMSF fund with rental income and capital gains, the SMSF lenders have also introduced favourable conditions.
Lenders now offer up to 80 per cent loan-to-value ratio (LVR) and a loan term of 30 years, like traditional home loans. Previously, the loan term would be 15 years. As a result, the repayment amounts are down as they are stretched over 30 years instead of 15.
While it’s a complicated product, it has historically shown lower default rates. As a result, non-bank lenders also offer this kind of loan for real estate investment. So for SMSF members, there are more options to choose from.
Commercial properties are the most popular among SMSF loan borrowers, but residential properties are now gaining traction. Again, the rising rents are creating incentives for investors in residential real estate.
Is Buying Property with an SMSF Loan the Right Choice for You?
Managing a super fund on your own is tricky and requires a lot of planning and risk assessment. However, using it to invest in a property may be even more challenging. If done right, it is a solid strategy for using the fund for wealth creation and maximising the retirement benefits of the fund.
The real estate market has been consistently growing for the past decade and even more so in the past two years. It presents the opportunity to use the funds for retirement for high returns in capital gains alone. However, when you factor in rental income, it gets even better.
That said, getting an SMSF loan for a property is a major undertaking, one that requires careful consideration, assessment, and a second opinion. If you’re committed to managing the fund through the end of the loan term and believe you can meet the conditions of the loan while also not violating the general terms of SMSF, it’s a viable investment option.
Unlike a home loan, this property is solely to prepare for retirement, so you cannot live in it until you have paid off the loan. Also, sometimes, lenders may charge higher interest rates than they would for a home loan.
Despite the complexity of an SMSF loan for buying commercial or residential property, SMSF members are seeking out loans to buy real estate. With the real estate market staying strong and lenders offering favourable loan terms, the incentive for SMSF borrowing is high at the moment.
Considering getting an SMSF loan for purchasing a property? Try DDP Property Finance (DDP) Finance to weigh your options. With so many banks and lenders on the table, finding the best option can be confusing. DDP Finance can help you find the best lender and maximise the potential of your retirement funds.
5 Qualities your mentor needs to have in 2021
The concept of mentoring is not a new phenomenon, however, to guarantee success as a small-business individual, it’s crucial to take a collaborative approach and mentorship is the most valuable method to accomplish this by. Learning from a mentor who has gone down a similar path before you, will ensure you ascertain the knowledge and know-how to speed up your career progression. A strong mentor will also ensure you avoid critical mistakes they may have made in the past.
Finding the right mentor can be difficult; existing in all shapes and sizes and specialising in a multitude of niche categories. Self-made millionaire, wealth creation and personal development mentor, Zaki Ameer, owes his success to mentoring he received early on in his career and he believes it is crucial if you want to achieve your goals.
Zaki Ameer shares his top 5 qualities to look for in a mentor to ensure a beneficial partnership ensues:
Have the results: Having already identified your business or career goals, you need to compare these aspirations with what exactly your potential mentor has achieved. You may be reaching out to more than one mentor at a time so this will require some thorough research, however there is no point partnering with a mentor who has not achieved what you plan to achieve for yourself!
Practise what you preach: Fundamentally, your mentor needs to be following their own advice. Why would you take their recommendations if they don’t do so themselves? As a mentor, not practicing what they preach completely kills their credibility. If there is a disconnect between what your potential mentor is teaching and what they are doing, then I wouldn’t recommend you choose this candidate.
Accountable: Being in a highly influential leadership position, your mentor must be able to assume responsibility for their actions and decisions. More importantly they also need to be able to hold you accountable. This skill is difficult to master but makes for a great mentor; they need to be able to establish clear expectations of you, gain your commitment, continuously follow up with you and provide you with feedback and potential consequences if promises are not met.
Growing: Despite the amount of success your mentor may have already achieved, they should always be striving for more and aspiring to be more successful. Your mentor needs to be continuously aiming higher and pushing their own boundaries to garner future growth. In doing so, mentors will continue to learn more valuable insight from experiences, which can then be passed onto you.
Partnerships: It would be ideal for your mentor to be partnered up with other mentors from different industries. That way their shared knowledge will be passed onto you, giving you a more wholesome experience through a balanced approach. For instance, your wealth mentor might be working with a health mentor, and their combined knowledge will provide you with well rounded advice focusing on more than one area of your life.
Mentoring can be for any aspect of your life, as long as you choose someone you truly aspire to and who has the ability to lead you towards your goals, they will be an extremely beneficial resource to have on your side. By using the above tips you will be able to find the best mentor for you.