If your investment property has turned out to be a dud,it could be time to make some hard decisions
If you own an investment property with negative equity, meaning the mortgage is greater than the value of the property, should you bite the bullet and sell now? And what if your investment is worth less than what you paid for it even though it’s not in a negative equity position? It all depends on a number of factors, say the experts.
With house and unit prices falling in some of Australia’s key markets, some investors who bought at the top of the boom may be facing negative equity. The Sydney market peaked in July 2017 and median prices are down 5.4% in the year to July 31, according to CoreLogic. Melbourne peaked in November 2017 and had fallen 2.9% to the end of July. Of course, some single-industry regional areas, particularly those linked to mining, have fared far worse than this, with falls in values of homes and units of up to 30% or 40%.
Michael Yardney, a director of Metropole Property Strategies, doubts that many city buyers would have negative equity in the true sense but concedes that even if your property is worth less than you paid for it you may be worried.
“It’s silly to sell now and crystallise a loss if you have an investment-grade property,” says Yardney. “But if you’ve bought a dud – maybe you’ve been taken in by a spruiker – the worst thing you can do is hold on in the hope that things are going to get better.” It might hurt but it’s better to take a smaller loss now than a bigger one later, says Yardney.
Anna Porter, principal and property adviser with Suburbanite, agrees. “If the fundamentals are all wrong – for example, it’s in a mining area, or a serviced apartment or there is no tenant demand – there may be further downside.”
Think long term
Denne historien er fra October 2018-utgaven av Money Magazine Australia.
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Denne historien er fra October 2018-utgaven av Money Magazine Australia.
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