Advice for First Home Buyers and Property Investors
Inflation in Australia is a hot topic right now. One thing becomes clear: money loses its purchasing power as prices rise. Whether it’s groceries, fuel, or construction materials, if you’re a first-time home buyer or someone considering investing or improving your property, the need for action is becoming more urgent. Inflation erodes the value of savings as the cost of living increases. Because of this, one of the best ways to protect yourself can be by investing in assets that grow over time, like property. Watch the videos below as Colin shares his thoughts on this topic.Inflation and Its Impact on Real Estate
Inflation occurs when the cost of goods and services rises, decreasing money’s purchasing power. In Australia, inflation is driven by a mix of factors, including global supply issues, rising energy prices, and increased demand in specific sectors. House supply has strained significantly over the last decade, keeping prices elevated. This problem is unlikely to go away anytime soon, keeping prices at a premium. Inflation can be a double-edged sword for first-time home buyers or property investors. On the one hand, the cost of building, maintaining, and improving properties goes up. On the other hand, inflation can push up property values, making real estate one of the few assets that tends to perform well during inflationary periods.Why Property May Hedge Against Inflation
Property has historically been a solid hedge against inflation for several reasons:- Tangible Asset: Unlike stocks or bonds, property is a physical asset with intrinsic value. Even when the value of money declines, real estate usually appreciates over time, meaning your investment grows even as the cost of living increases.
- Rental Income: As inflation rises, so does the cost of renting, which can help to increase your rental yield.
- Fixed-Rate Mortgages: Inflation works in your favour if you’ve secured a mortgage with a fixed interest rate. By keeping payments constant and increasing rent, profit can grow.
Why Is Now the Best Time to Act
With the Reserve Bank of Australia holding interest rates up to control inflation, you might wonder if now is the right time to invest in property. The answer is yes, and here’s why:- Money Will Never Be As Cheap As It Is Today: Interest rates are high, but still low compared to previous decades. While rates are higher than in 2020, they remain well below the long-term average. Waiting for rates to drop could result in paying more if inflation rises.
- Property Prices Are Still Rising: Property demand is still elevated due to supply issues, and prices have risen despite recent market fluctuations. In many areas, property values are still trending upward. Delaying a decision could cost money. By investing now, you may ride the wave of appreciation before prices soar and when/if inflation rates decrease. The longer you wait, the more you could pay for the same asset.
- Government Incentives for First-Home Buyers: For first-home buyers now is an excellent time to take advantage of government incentives to make their entry into the property market more affordable. Programs like the First Home Loan Deposit Scheme (FHLDS) and First Home Owner Grant (FHOG) are designed to help first-time buyers. These incentives may not last forever.
- Renovations Will Only Cost More: For those considering improving their existing property, now might be the time to do it. The cost of building materials has surged due to supply and increased demand. The longer you wait, the more expensive your renovation project may become. By renovating now, you can lock in today’s prices. Upgrading your property can increase its value and overall market appeal, providing a better return on investment in the future.