With capital city property values bouncing back, we take a closer look at the factors driving prices higher, and consider some of the trends across regions and property types that could make all the difference between a successful investment and a loss-making money pit.
Has the Australian property market turned the corner? In a word, yes – but not in every state, and not to the same extent everywhere.
Here are the headline numbers. According to CoreLogic’s Home Property Value Index, dwelling prices across the country increased 4% in the December quarter, led by Sydney with a 6.2% rise and Melbourne with 6.1%.
That saw Melbourne prices climb to within 2.3% of their pre-slump peak, while Brisbane and Adelaide have regained almost all their lost ground. Meanwhile, Hobart and Canberra have reached new highs.
Yet some markets are still in the downward phase of the cycle, with prices either flat or falling. Darwin dwelling prices continued their long decline, losing 1.4% over the quarter, to record a total fall of 31.8% over the last 12 years. And while the Perth market is beginning to show signs of bottoming out, dwelling prices in the west were still down 0.1% over the quarter and 9.7% over the year.
So what does this all mean for property investors? And how do you go about finding a winning investment?
The power of micro-markets
The first and most obvious point is that the property market cycle continues to turn – but that different cities and regions are still at very different points in the cycle.
Helping to drive the market higher are record low interest rates (with money markets divided on whether there will be more cuts to come in 2020 (1)) , APRA’s relaxation of the tighter lending rules introduced in the wake of the Hayne Royal Commission, and Australia’s relatively robust jobs performance, with unemployment edging down to 5.1% in December 2019.
But perhaps the most important trend underlying the market’s expansion is our rapidly rising population, driven largely by migration. At 1.6% a year, our population growth rate is among the highest in the OECD (2) – and housing construction is struggling to keep up with demand (3). Much of that growth has been concentrated in a few major cities, especially Sydney, Melbourne and Brisbane, which together accounted for 67% of Australia’s population growth in 2018, helping to explain the unevenness in property markets across the country (4).
Even within cities, jobs and population growth tend to be concentrated in particular localities. It’s the reason real estate analysts talk about ‘micro-markets’ for both locations and property types. For example, at the height of the Sydney property slump in 2018, when prices were falling 9.9% across the city and analysts were talking about an oversupply of new apartments (5), apartment prices actually rose more than 12% in a few in-demand Sydney enclaves, including Crows Nest, Elizabeth Bay and North Bondi (6).
Five steps to property success
1. Start with a strategy
Are you chasing capital growth or a high rental yield? How much, and over what time frame? And do you plan to improve the value of your property with renovations, or would you prefer a turn-key investment? Identifying your goals and doing the numbers upfront will help you set clear criteria as you go searching for the right property.
2. Get the data
Property market data has never been more plentiful and easy to access – from capital growth rates to rental yields and in-depth suburb profiles. Well-known providers include Corelogic, realestate.com.au and Domain, but a quick Google search will uncover many more, some free, some subscription based.
3. Choose your micro-market
Now you’re ready to choose a location and property type that matches your objectives – whether it’s a fast growing area with strong buyer demand, or an established suburb with high rental yields. Remember that locations with high yields may have low rates of capital growth and vice versa, since a lower price means a higher yield as a proportion of the purchase price. For example, at 6.2%, regional WA had some of the highest yields in the country in 2019 – but they were helped along by an 11.8% fall in dwelling values.
4. Arrange your finances
One of the potential attractions of property as an asset class is that it is relatively easy to borrow against, at what are currently very low rates. However, gearing can multiply losses as well as gains, and rates can change over time, so it’s important to choose a level of gearing you are comfortable with and can sustain over time.
Remember to keep a financial buffer ready in case of rate rises, vacancies, repairs and other unexpected events. Ideally, you will do a detailed cash flow projection, taking into account rents, expenses, loan repayments and tax deductions.
5. Talk to us
We can help you determine the numbers before you invest, with a plan that’s perfectly aligned to your long-term financial goals. That way you can take advantage of the benefits of property investment and avoid the pitfalls, confident that you have professional advice on your side.
Book your free initial financial planning consultation online or call Verve Group on (08) 8120 4877.
1 As at 22 January, cash rate futures indicated a 58% chance of rate cut in February, according to the ASX RBA Rate Indicator.
2 World Bank, Population growth: OECD members, 2018.
3 RBA, Housing and the Economy, 2019.
4 ABS, Regional Population Growth, Australia, Release 3218.0.
5 Macrobusiness, CoreLogic: Sydney and Melbourne face two years oversupply, 2019.
6 Australian Financial Review, The Sydney and Melbourne suburbs defying the property downturn, 2019.
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