It is quite probable that we are experiencing property investment conditions that rival that of 2001 and 2002. record low interest rates; most property markets coming out of a period of extended sluggish growth (and in some cases negative contraction); and the potential for a big upside if the overall economy kicks into gear as expected.
Property investors should be mindful that a bank valuation doesn’t necessarily reflect the market value. Things to consider should be:
- Does the replacement cost exceed the valued or purchase amount?
- Are the comparable sales really superior to the subject property (our analysis has suggested otherwise in some cases)?
- Are there other comparable sales that could have been used?
- Is there any commentary regarding the location of the property investor vs the subject property?
- Does the valuation appear to be written from a conservative stand point?
Overall the purchaser should be comfortable with there investment decision but in my opinion this decision should not be solely based on the report by a random property valuer.
Whilst many lenders may very well be looking at ways to reduce their lending to property investors there are plenty of others that are hunting for the business. Some of the second tier lenders are offering outstanding rates and higher loan to value ratio’s (up to 95% of the purchase price) in some instances.
This provides property investor clients with the potential to restructure their investment loans should a bank ordered valuation come in short of the purchase price.
Yes there may well be a higher level of mortgage insurance to pay but this enables the lender to offset some of the potential default risk; alleviates some of the concerns expressed by the prudential regulator; and perhaps most importantly provides a property investor the opportunity to move forward on their decision to purchase in what I believe is one of the most exciting periods of property investment history.
National Sales Manager
The Watermark Group Australia