With interest rates at an all time low, many investors are looking to real estate to increase their wealth portfolio. It may also see many new buyers join the market to buy their first home. But how does financial planning assist this goal? We have asked two professionals to give us their thoughts on the real estate industry, COVID, Government incentives and financial planning.
The real estate experts we have interviewed have knowledge that spans years in the industry and are happy to assist our readers, young and old, to achieve their financial goals.
Introducing our Real Estate Professionals:
Damien can be contacted via email on email@example.com or phone 0438 859 109
Mark can be reached via email on firstname.lastname@example.org or phone 0427 445 224
And now to the questions!
Thank you to both of you for your time in answering my questions regarding investing and real estate. Our readers would like to hear a bit about your personal thoughts on investing and the like. Therefore, a good start would be to ask what your personal investment philosophy is?
DW: I must admit, I am biased – and am a big believer in property. It is a solid investment over the longer term and is a tangible asset that also gives you some flexibility to use the asset (for example owning an investment property which you intend on downsizing into later for your retirement).
MS: I definitely agree, being a real estate agent, I am passionate about property and believe it provides an excellent vehicle for investment. I personally hold a mix of residential and commercial property and believe location is key. I tend to favour property within reasonable proximity of the city, although acknowledge there is also merit in investing in or close to a regional centre.
I know that many of our clients see property ownership as a large expense and also that first home buyers find the process of getting into home ownership daunting. What are some tips you can suggest to assist getting buyers into the market?
MS: From a budget point of view, understanding your finances and how much you can comfortably borrow is a most important first step in the home buying process. Once you have a budget, it is wise to obtain a loan pre-approval so once you start looking, you can act quickly and confidently make an offer if you come across a property you like.
DW: Absolutely! Having the funds available to pay a deposit and having knowledge of your loan serviceability is paramount. As part of the 2020-21 Federal Budget, the First Home Loan Deposit Scheme (FHLDS) was introduced specifically for eligible first home buyers purchasing new homes. Usually, first home buyers with less than a 20 per cent deposit need to pay lenders mortgage insurance. Under the Scheme, eligible first home buyers can purchase a modest home with a deposit with as little as 5 per cent (lenders criteria also apply). I think this can give those entering the market peace of mind that they won’t miss the boat whilst trying to save up the 20% deposit.
These helpful schemes certainly can have a positive impact on people entering the market for the first time. I’ve heard a bit about the new grant as well, can you tell our readers a little bit about the current First Home Owner’s Grant?
MS: First home buyers in South Australia may be eligible to access a once-off State Government First Home Owners Grant (FHOG) of $15,000 when purchasing or building a brand new home, provided the market value of the home does not exceed $575,000.
DW: Yes, it’s a great incentive for those entering the property market. There are of course conditions to the payment. The residential property must be occupied as each applicants’ principal place of residence for a continuous period of at least six months commencing within 12 months of date of settlement for contracts to purchase, or the date construction is completed for owner builders or contracts to build.
Working within the Financial Planning sector and having knowledge of superannuation and its many benefits means I recommend clients use the Super Saver incentive. Have you seen many clients using the Government incentive? What are your thoughts on its premise?
DW: Interestingly, no. I think this initiative to assist First Home buyers with saving for their first home is not widely known. It allows them to contribute additional funds to super, which is more tax effective, and then redraw towards a purchase. I think if more young people knew about it, they would take advantage of it.
MS: Personally, I only know of a few clients who have taken advantage of the First Home Super Saver Scheme (FHSSS). I think it is an excellent federal government initiative which probably doesn’t have as much awareness as the state-based First Home Owners Grant.
Financial Advisers definitely have more work to do to make the general public aware of the benefits of such an incentive and how it can assist them in owning a home sooner. In saying that, we acknowledge that there is merit to having a team of professionals assisting with clients with their finances, large purchases (like a home) and retirement planning. How do you see Financial Planners assisting your clients and vice versa?
MS: Owning your own home or investment property is a cornerstone of wealth creation. That said, a real estate purchase shouldn’t be made without knowing your financial position, understanding available investment strategies and having a long-term plan. As an agent I see great value in clients speaking with a financial planner before making a purchase decision, regardless of whether that purchase is for investment or occupation. In reverse, a financial planner may advise that a real estate purchase is advisable, or that it may be best for a client to sell an existing property to purchase another or to pursue a different investment strategy.
DW: I agree, real estate agents can assist clients with regular updates on the market value of their properties, perhaps allowing them to unlock equity to make good financial decisions, and to assist with the sale of properties to realise the value of those assets. For many the sale of the family home when they reach retirement, and then downsizing, hopefully leaves money left over for living expenses in retirement. Owning investment properties hopefully contributes to this too and gives you a better lifestyle along the way.
Having that team of professionals around clients really empowers them in a way that gives them the knowledge to make informed decisions about their financial future. Having said that, we are living through difficult times at the moment and it would be amiss of us not to mention the elephant in the room. Has COVID had an impact on the Real Estate market? If so, how?
DW: The Adelaide market has been resilient on price This has been due to a decrease in stock levels meaning that buyers have had fewer properties to consider. At the height of the pandemic the stock numbers were down about 40% but have recovered to some extent as restrictions have eased.
MS: Indeed, I noticed the same effects on the market as unprecedented restrictions came into force, there was a sense of panic and buyer enquiry declined significantly. Since May 2020 the market seems to have normalised with no noticeable impact on time on market or prices achieved for our listings. If anything, the market has actually favoured sellers over the past few months. I would surmise that sellers have been holding off from putting their properties on the market, possibly due to uncertainty, resulting in diminished stock levels and greater competition for properties which are on the market.
We are all hopeful of life returning to normal as soon as possible and with that a change in the markets also. Whilst none of us own a crystal ball, what do you see happening to the real estate market in the future?
DW: That’s the $1m question at the moment, depending on your level of optimism. None of us have lived through a pandemic before to know exactly how we come out the other side. The reality is that some individuals and industries are going to be hit harder than others, particularly once the government support lifelines like Jobkeeper are removed. These are likely covering the true financial impact of COVID.
MS: The real estate market is linked to the economy, however the Adelaide market seems robust and my feeling is that continued consistent performance is likely over the mid to longer term. I expect that any short term reduction in property values will be marginal, particularly in the inner suburbs, and such reductions will be far outweighed by longer term growth. Times of uncertainty and economic volatility may even attract interstate investors to the stability of the Adelaide market.
I am hoping that the questions we have covered today are varied enough to cover a lot of ground for our readers and pique their interest for either themselves or their loved ones. Knowledge is power and having a professional team assist them in learning of the differing schemes and incentives for entering the real estate market, as well as hearing of their personal investment philosophies can give great confidence to clients. Thank you again to Mark and Damien for their words of wisdom, it is greatly appreciated.
We have listed some links below to help you plan your financial objectives for property ownership:
First Home Owners Grant – www.revenuesa.sa.gov.au/grants-and-concessions/first-home-owners
Homebuilder Grant – www.treasury.gov.au/coronavirus/homebuilder
First Home Loan Deposit Scheme (FHLDS) – www.nhfic.gov.au/what-we-do/fhlds/
First Home Super Saver Scheme – www.ato.gov.au/individuals/super/withdrawing-and-using-your-super/first-home-super-saver-scheme/
Thinking about home ownership or investment but not sure where to start? Contact our advisers today to make an appointment to discuss your financial goals. We are here to help!