August 2016 - What Comes After the Boom?
By Rich Harvey, Managing Director propertybuyer
With prices rising 38% nationally since the start of the last phase, where do we go from here? See my perspective on the property market for the next few years.
We also look at five reasons to consider QLD plus look at our latest client success stories. Check out my latest blogs too. Enjoy!
This August update includes:
1. What comes after the boom?
2. Finalist! REINSW Awards for Excellence
3. Election Over - Now 5 reasons to invest in QLD
1. What comes after the boom?
Sydney and Melbourne median house prices have risen 63% and 42% respectively since the beginning of last cycle from July 2012 according the CoreLogic.
Nationally prices have risen 38% over the same period. It's been quite a ride for property owners since the start of this latest phase of the property cycle. If you own one or more properties you should have seen some significant equity growth which would position you very well to reinvest back into the market. However re-entry into the property market means you should take a longer term view of growth potential.
We are now entering a period of consolidation and price stabilisation. Booms don't continue forever and it is unrealistic to expect 10% growth every year. We are likely to see a pattern of more subdued growth going forward and a return to a period where property prices more closely track with inflation and wages growth. This is good news for first home buyers and those trying to get a foothold in the market.
Value adding strategies are the smart way to create increased equity and yield in a lower growth environment. Investing in property provides secure, reliable and long-term tax-enhanced capital growth.
Investors and home buyers should expect to see moderate capital growth in the future. Does this mean you should abandon your investment or home buying plans? Of course not. If you look at the median price of houses just after each boom and then track it to the same point of the next cycle you will see that prices have risen substantially. For example, after Sydney's boom which ended around 2003, the median house price was $434,500 but seven years later in 2010 the median price had risen to $612,000, and as we know today hovering around the $1m mark.
With interest rates so low, there has never been a better time for borrowers to get into the property market. Long term predictions are indicating a low interest rate environment for many years ahead. The banks have already tightened their lending requirements and they usually add 2% to 3% safety margin on current interest rates when assessing serviceability.
Lower interest rates tend to drive the lower end of the property market more than the prestige markets. However lower rates have also helped drive the previous boom as borrowers have leveraged more with larger mortgages than ever before. Tip: make sure you have a buffer in place for all your borrowing in case of emergency.
Jobs growth, rising population numbers and infrastructure investment is the potent trilogy for property markets to thrive in the long term.
Expected population growth over the next 15 years is likely to be substantial with an extra 1.3 million in Sydney and 1.5m in Melbourne (and even greater numbers over 45 years).
Building approvals have hit record highs in the past two years but this is also moderating in line with the cycle. For Sydney, much of the increased supply was playing catch up for the previous decade of under-supply. There are likely to be pockets of apartment oversupply in the some suburbs of Sydney, Brisbane and Melbourne. But these pockets will not dominate the entire market nor lead to a crash as some commentators would have you believe.
The best strategy for both home buyers and investors is holding for long term and seeking ways to value add. Ways you can sensibly invest include:
- Buy established properties in quality suburbs ripe for renovation
- Buy quality stock while there is less competition around
- Manufacture equity via subdivisions or development
- Create positive cashflow via dual living, duplex strategies, or granny flats.
Many investors are considering a flight to regional areas to chase higher yields. You need to be very careful where and what you buy. Not all regional areas will perform to expectation. Higher yield is typically a reflection of higher risk.
As the market cools and moderates across the nation, now is not the time to speculate on the latest hotspot. Some regional areas will perform well, but they need to be of sufficient size and with long term economic drivers from diverse industries. It's vital to take a long term view and select suburbs that will outperform the market and improve your future wealth.
To navigate your way through the post boom period and select a property strategy that fits your individual situation please call my friendly team of buyers agents to start a conversation today on 1300 655 615 today or email us your requirements
Rich Harvey is founder and Managing Director of www.propertybuyer.com.au, Australia's most awarded Buyers' Advocates. Propertybuyer helps property investors and home buyers search and negotiate the right property at the right price, everytime. Visit www.propertybuyer.com.au or call 1300 655 615.
2. Finalist! REINSW Awards for Excellence
propertybuyer has been announced as a Finalist in the REINSW Awards for Excellence - Buyers' Agency.
We are proud to have been nominated again and look forward to the winners being announced in October at the REINSW Gala Dinner.
Will it be 8 times lucky for us?
3. Election over - now 5 reasons to invest in QLD
Now the dust has settled on the Federal Election and with negative gearing here to stay for at least the foreseeable future it could be time to consider where to acquire your next Property investment.
Queensland has a great climate, magnificent beaches, world heritage-listed rain forests and a thriving economy... which all adds up to a fantastic lifestyle.
The southern part of the state is where a lot of the activity happens, especially in the Capital of Brisbane. Brisbane has often
been left behind by its southern neighbour's Sydney and further south Melbourne, but with so much going for this city and state I ask the question, is Brisbane the next property hot spot and I came up with five reasons why you should consider investing in Brisbane.
Here are my 5 reasons why you could consider your next property investment in Brisbane.
As its southern neighbours property markets have boomed over the last few years it has put ownership in Sydney and Melbourne out of reach of many first home buyers, Brisbane offers a cheaper entry point into the market. With plenty of employment opportunities, I can see many young couples migrating North to enjoy the lifestyle and also enabling affordable home ownership. Also retirees seeking a change of lifestyle and warmer climate can get value for money in south Eastern Queensland...they can sell their properties down south and buy up north and still have change left over to help fund retirement.
- Population growth
According to the Queensland Government, population projections for Greater Brisbane is projected to remain the most populous region in Queensland, increasing from 2.15 million persons in 2011 to 3.44 million in 2036. The Gold Coast is projected to have the second largest population in 2036 increasing from 529,000 to 922,000 persons in the 25 years to 2036. Demand and supply will ensure capital growth long term.
- The Economics
Queensland regularly leads the nation in Job Growth and with shortages predicted in the coming years in both white and blue collar industries such as Construction, Hairdressing, Nursing, Mechanics, Engineers, Education, Physiotherapists, Welders, Medical Diagnostic and Hospitality .... there are great opportunities and incentives to move north for both young and old. Queensland is the favoured holiday destination for Australians with the Gold Coast being named the number 1 holiday spot, with increasing numbers from across Asia, Europe and the US travelling to Queensland for holidays which provides Jobs and stimulates economic growth.
- Property cycle
Brisbane is in a different phase of the property Cycle and at a different stage to Sydney and Melbourne which in my view is at the top end, I believe Brisbane still has room to move.
The weather is warm, the sun shines often, the beaches are Beautiful and clean, great restaurants, transport and infrastructure. It is well policed and governed, school options are a plenty with both private and public and a great culture exists among the Queensland people...sounds like a good place to live let alone invest?
Founder & Non Executive Chairman - Chan & Naylor Accountants
Disclaimer: This article contains general information. Before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.