How to reduce your risk when buying in a flat market

Here are six simple tips to reduce the risk of buying in a flat market:

1. Do your research, look at where in the property cycle the suburb is. Whether its early in its decline, or near the bottom of its decline, work out the growth there has been in the area for that type of dwelling and the current environment in the suburb and surrounding suburbs. There are markets within markets.

2. Look at drivers that will stimulate growth in the suburb, such as supply versus demand, scarcity and income growth. Well-situated properties in good suburbs will always increase in value. The benefit to the buyer in a declining market is that they hold the cards, they can better dictate the terms. For several years now, the sellers have had it their way, now it’s the buyers turn. Take advantage. Show no mercy to vendors.

3. Focus on buying the most suitable dwelling in an area that is and will remain appealing for several demographics. Whether you plan to live in the property or not, some properties only suit limited or certain demographics such as downsizers, some only suit professionals, and some only suit young families or couples. Buy a property that will always have resale appeal, this will help protect you from losing money on the purchase in the future.

4. Negotiate well, or engage the services of a buyer’s agent to negotiate for you. Never trust the sales agent, he is only there to serve the interests of the seller when it comes to price, NOT the buyer, unless of course he is lazy. I had one example recently of this. We were buying near Sydney, a three-bed townhouse, it was due to go to auction, but the auction conflicted with a christening the agent had on so he accepted our offer and convinced the vendor it was the best course of action.

5. A buy and hold strategy with a long-term view will help you reduce the risk of paying more than what is ideal for a property. Time can heal many wounds. So, avoid oversupplied areas, buy near infrastructure, amenities and transport, and retain the property for seven to 10 years plus. Buy to renovate and sell may prove more difficult in a declining market, depending on the renovations and how long they take to complete, versus how rapid the prices in the area are declining.

6. Remain vigilant with the coming changes to the lending landscape. Lower interest rates may help you afford more debt, but it won’t help you be able to borrow more money on a lenders’ borrowing capacity calculator, given that lenders use higher qualifying rates of typically 7.25 per cent. What is changing is the qualifying rate itself.

Consider the qualifying rate being reduced by a percent or more, your borrowing capacity will rise, and this could allow you to look to purchase in a better area than what your previous capacity might have allowed you.

Remember, if your property strategy is a longer term one, you negotiate well. And if you undertake thorough research, you will do much better. Purchase near amenities and transport in a suburb with good population base, supply outweighing demand, with limited construction of new dwellings, and a dwelling type that appeals to more rather than fewer people.

Whether it be your first home, your next principal place of residence, or an investment property, the more risk you reduce, the more potential you will have.

Andrew Crossley is a property investment strategist.

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