Unless you've been hiding away in a cave somewhere, you'll know that property markets in our large capital cities are going through a change right now. The turnaround in sentiment was swift. Buyers have become more cautious, and vendors need to meet the market in order to sell.
In this environment, it's easy for purchasers to hit pause on their plans and step away from the idea of purchasing altogether. They're fearful there's more downside to come, so they sit tight and wait for conditions to "feel safe" again.
But if you take a clinical look at the market and run the numbers with a clear head, you'll discover something that surprises most people. It’s that soft markets are actually a prime opportunity for upgrading your home. This is especially the case in the wake of the Federal Budget changes.
Let's explore why.
Here's the fundamental principle most upgraders miss. When you sell and buy in the same soft market, the discount on the more expensive home you're buying is bigger in dollar terms than the discount on the less expensive home you're selling. The gap between the two, which is called the ‘changeover cost’, actually shrinks.
Let me give you an example. Say you live in a home that was worth $1.8 million 12 months ago, and you've outgrown it. Your plan was to sell up and buy something around the $3.2 million mark. Unfortunately, your plans to sell last year were delayed, and now you're in the throes of a softening market, with values sitting around seven per cent lower than where they would have been a year ago in your area.
Most buyers in this situation will go to ground and wait out the downturn.
But if your plan was to upgrade to that $3.2 million house, you shouldn't follow the herd. You should, in fact, plough on with your sell-to-upsize plans.
Why? Because a seven per cent discount on your $1.8 million home is $126,000. That stings, no question. But the thing is you are now selling out of and buying into the same depressed market… and in this case, relativity is key. That $3.2 million home from last year is now worth $224,000 less.
Run the numbers side by side and you're netting a $98,000 upside, simply because the market has softened. Because you're trading up, the changeover has amplified in your favour.
There's a second layer to this equation that makes the case even more compelling.
So long as you rely on advice from an independent buyers' agent when choosing your new home, there's every chance that when the market does turn, you’ll enjoy substantially better upside than if you'd stayed put.
Reverse the numbers from our example above. A seven per cent recovery on your new $2.976 million purchase delivers around $208,000 in gains. The person who bought your original home enjoys a recovery of roughly $117,000. You come out around $90,000 in front on the way back up, on top of the changeover saving you banked on the way in.
Soft markets punish those who sell and exit, but they reward those who sell and trade up.
There's another practical advantage that's easy to overlook. In a soft market, listings tend to linger and buyer numbers thin out. That means genuine choice for upgraders rather than settling for whatever's available.
Family homes with the right fundamentals are fiercely contested in a rising market. Right now, you can inspect with a more relaxed mindset, negotiate with motivated vendors and secure a quality home without five other buyers breathing down your neck. Try doing that in a boom.
Then there's the other big upside delivered by the recent Federal Budget changes. While those reforms dented confidence in the investment property market and contributed to the current softness, the primary residence exemption remains completely untouched. While investors are now grappling with a less generous CGT regime, any capital growth in your family home remains 100 per cent tax free.
That makes the family home arguably the single biggest opportunity to park your dollars for tax-free wealth generation. In short, directing money into upgrading your own home, especially while prices and competition are depressed, positions you to capture substantial long-term, tax-free upside.
In short, the relative attractiveness of the family home as a wealth vehicle has never been stronger.
Everyone wants to time their upgrade perfectly, but the truth is that once you can see the market turning, it's already happened. The most opportune window for acquiring your upgrader home will have closed as other buyers rush back in, competition reignites and the changeover gap starts widening against you.
Waiting until it feels safe is really just waiting until it's expensive.
Of course, central to success is choosing the right upgrader home. It must be one that meets your family's needs today and has the key fundamentals for long-term value gain. Get that right, and when the time eventually comes to downsize again, you'll have a generous tax-free nest egg of a family home to draw on.
Asset selection is where the real value is created, and it's maximised by using an experienced buyers' agent. We know which properties hold the key to exceptional growth, which streets outperform, and how to negotiate hard in a soft market on your behalf.
If you've outgrown your home and you're wondering whether now is the moment to make your move, reach out to my team. We'd love to help you turn a soft market into an outstanding upgrade opportunity.
Give us a call on 1300 655 615 to start a conversation about your next property purchase, or click here to send us your enquiry today.
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