How to navigate the property battlefield: the art of risk
The Art of War offers some valuable financial lessons for people planning to buy, sell or invest in property in 2022.
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“Know your enemy” is a famous piece of advice that has stood the test of time.
It comes from ancient Chinese general Sun Tzu’s book The Art of War, first published around 500BC, and can be just as valuable in the real estate game as on a battlefield.
Whether you’re planning to buy, sell or invest in 2022, it’s worthwhile understanding potential financial threats.
Enemies may differ depending on your property position. An owner or investor loves strong capital growth while a first home seeker loathes it.
Rising inflation usually leads to higher interest rates for borrowers. However, owner-investors may enjoy its positive impact on higher rents flowing to them.
Sun Tzu also said “ponder and deliberate before you make a move”, so here are four key threats to ponder.
INTEREST RATES
Rates will go up – it’s just a matter of timing.
Omicron has perhaps slowed the march towards higher Reserve Bank interest rates and variable mortgage rates, but many economists still expect a rise before the end of the year. Check whether your income can cover rate rises but don’t expect massive mortgage increases.
The huge level of borrowing in Australia means just a handful of RBA rate rises would slow inflation, send big-spending households back into their shells, and put future rate cuts on the agenda.
AFFORDABILITY PAIN
Housing affordability has been a financial killer in recent years and 2021’s gains of more than 20 per cent in most capital cities haven’t helped the situation.
The proportion of household income required to afford a mortgage has surged in the past 20 years and subdued wages growth means it’s unlikely to change.
The best advice for buyers to deal with this threat is to work hard to build a deposit, understand all available grants and assistance schemes, and if possible recruit the bank of mum and dad to help you get a foot in the door.
It’s a stressful situation when you feel like you’re constantly fighting to catch up to climbing prices. However, another 20 per cent-plus year is not expected by economists and experts, and remember that many others are in the same situation.
A PRICE CRASH
There’s no talk of this scenario, but neither was there in early 2020 just before Covid came and caused panic selling.
Who knows what’s coming after Omicron, so keep an eye on your finances and work out if you would be able to ride out a real estate storm in the form of a 20 per cent price crash over the short term.
If you can, seek to take advantage of any sharp reversal in real estate prices. As Sun Tzu said, “in the midst of chaos, there is also opportunity”.
FOMO
One of the biggest threats in real estate in 2022 remains FOMO, the fear of missing out.
People acting on fear do silly things, so always check your emotions. Last year I scrapped buying plans when certain housing markets got too hot – giving me a small victory over
Originally published as How to navigate the property battlefield: the art of risk
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