Highlights
- Look at the interest rates and prices of properties.
- Consider the value of investing in property versus leaving your money in the bank.
- Use your existing equity as deposit to another property.
May PERAan' is SBS Filipino's podcast series which features financial experts seeking to answer the most common questions about money and finances.
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Ano ang mga risks sa pagbili ng investment property ngayong 2022?
SBS Filipino
29/03/202210:20
"The property market has really gone up - more than 20% in the last 18 months. Keep in mind that buying property is a long-term investment, so if you're in a good position to invest, why not?" mortgage broker Maria Papa shares.
Maria says that should you consider adding another investment property to your portfolio this year, there are several things you need to consider.
Learn the jargon
When you're going to invest in property, Maria shares that you should familiarise yourself with the jargon.
Some of the terms you should know include:
Capital growth - when your investment property grows in value over time
Negative gearing - when the income generated by a property is not enough to cover the cost of the said investment
Equity - the difference between the current value of the property you own and how much you still owe the bank
Look at the interest rates and property prices
"Banks have increased interest rates by 1%. Before, you could acquire fixed rates of below 2% but now it can reach to up to more than 2 to 3%. This shows that the banks see interest rates increasing in the next 1-2 years.
"The Reserve Bank of Australia is insistent that the cash rate will be kept at .10%, but the banks are actually increasing the interest rates."
While the increasing interest rates may be a potential problem, Maria says that they are still at a record-low.
"In the whole of Australia's financial history, this is the lowest that rates have ever been. In the 1980s, interest rates were at 20%. Now it's only at about 2-3%.
"But of course, aside from the interest rates, you have to look at property prices."
The value of your investment
Maria shares that if you can afford it, invest in property instead of letting your money sit in the bank.
"The problem is that if you're keeping your money in the bank, the interest you get is less than 1% annually. In terms of investment, inflation beats that. Inflation is expected to be between 2-3%, right? The value of your money gets smaller over time."
"The property market isn't going down. On the contrary, it may go sideways in the next three or four years; but after that, it will go up again.
"Property is still a good investment. It's tangible. You're also banking on capital growth and, negative gearing if you have a good income. There are also tax incentives when you're investing in property."
Maria shares that the profit you earn from an investment property can eventually be used for your retirement.
Use equity
"Don't use your savings to buy another investment property. Use your savings as your emergency fund."
Maria shares that the equity from the investment property you currently possess should be what is used for the next investment opportunity you will have.
"For example, you borrowed $400,000 from the bank 10 years ago to buy an investment property. Today, the property costs $800,000 and you've paid off $100,000 over those 10 years. Now, you have an equity of almost half a million. Use that equity as the deposit for your next investment property."
