Buying real estate, especially a property that you will live in, is often a very emotional decision.
Most people buy based on their existing lifestyle, or the lifestyle they want. Factors can include where you want to live, how close (or maybe how far away) it is to your family and friends, or where you work. Most people buy their home because they “love” them.
However, if you were investing in another type of financial asset, such as shares, you’d have completely different criteria for deciding what to buy – stability, security, management and earning potential may all be elements to consider before you invest your money.
Some good reasons to buy property
Property is generally a long term investment and despite some of the emotional considerations, there are some very good reasons to invest in your home.
Let’s get the emotional stuff out of the way.
If you buy property you have somewhere to live without paying rent (and essentially funding someone else’s property investment). If your home is mortgaged then you are effectively forced to “save” by making your regular repayments and chipping away at the amount you owe the bank – the longer you pay and the more you pay, the more equity you build in the home.
Property also tends to increase in value over time, and there are six key reasons why property prices should continue to increase over the long term:
- Simple supply and demand
- Australia doesn’t lack space, but if you want to live in or near any of the major cities then the supply of housing tends to be limited. So the more popular an area is, the higher house prices become because there are more people competing to buy.
- Infrastructure
- Schools, public transport, shopping, swimming pools, hospital and health care facilities, good roads and other amenities all factor into the popularity of areas and the attractiveness of properties in that area.
- Lifestyle
- Everyone would love to have a sea view or a bit of bush, or perhaps a vineyard or olive grove. The sea- and tree-changers are driving up prices in locations that offer these lifestyles.
- Affordability and the availability of money
- How much it costs to buy a property and the cost of regular repayments can affect property prices. Interest rates are essentially the cost of lending. When interest rates are low more people can afford the repayments, so they flock into property and compete to buy, pushing up prices. When interest rates are higher, the cost of borrowing goes up so there are less buyers, and therefore less competition for individual properties.
- Employment boom
- Secure jobs and low unemployment mean people are more confident in their ability to pay their mortgage. Low unemployment also makes it harder for employers to find good people, so they offer more money. And it makes sense, if you’re earning more you’ll improve your standard of living.
- Property investors
- Those baby boomers are retiring and they’ve got money to burn. Some property experts predict they’re all going to want to spend it on the sea- or tree-change lifestyles or maybe even invest it, and what better place to invest than property. More buyers, more demand and therefore, higher prices.