What will an Australian property investor look like in 20 years?
While we hope the answer is “rich and happy”, we sit down with those in the know to find out.
Many Australians have long term goals when buying residential real estate.
And the fact is to invest in anything you’ve got to be future-facing.
Investors understand that we can double our money by owning a property for 10 years or more so we commonly buy hoping to hold long-term, reap loads of juicy value lift and make a big return on our initial investments.
True there are no guarantees in the property market.
But a good grasp of predicted future trends is an invaluable investment aid – well-researched decisions today almost always net profit tomorrow.
So, without further ado, we’ve asked a bunch of industry players to gaze into the future and report back on what they see.
DATA DYNAMO – Cameron Kusher, CoreLogic RP Data
Cameron Kusher, senior research analyst for national property data provider CoreLogic RP Data, sees fewer owner-occupiers (as a percentage of the housing market) by 2035 because housing prices will rise to a point where more properties will be owned by investors who have amassed equity in their portfolios.
Restrictive costs associated with owning housing will deter many people from buying their own homes.
Kusher also thinks new, more attractive ways to build wealth beyond buying residential property will emerge in the next 20 years.
These new options will disrupt 2015’s owner-occupier/investor-owner property mix.
“The issue investors will face is achieving returns,” Kusher says.
“It’s difficult to imagine the growth in home values seen in the past will be able to continually be replicated.
Furthermore, political pressures as gen-X and gen-Y voters outnumber baby boomers may lead to changes to the treatment of residential property as an asset class.
“I could see the very real possibility that negative gearing has been changed or removed by 2035.
“We may also see a more sufficient supply of housing by this time, which could also impact on investment property owner’s returns.”
Asked what investors will be buying by 2035, Kusher believes the market’s current focus on “more populous areas” and apartments will remain unchanged.
“This is unless we see some decentralization of big business away from the largest cities.”
FORECAST WHIZZ – Angie Zigomanis, BIS Shrapnel
Angie Zigomanis, senior manager of residential property for property market research and analysis company BIS Shrapnel, says the big question is “what happens to law and regulations along the way to 2035?”
“Negative gearing, for example, may not be here in 20 years’ time and we also don’t know what will happen to regulations around self-managed super funds (SMSFs). Both of these issues have the potential to have large impacts on the numbers of investors in the market and how they’re investing,” Zigomanis says.
“But, taking those issues to the side because both will be determined by the political landscape and that’s impossible to forecast, in terms of what the property investor as an individual looks like by 2035, my reply is ‘the same’ except they’ll be living longer so they may not cash down their assets as early as they do today but will hold property for longer.
And that will tie up more of Australia’s more valuable metropolitan real estate for longer.”
Teasing out this forecast, it means younger people will rent for longer into adulthood, adopting “a more European rent-for-life housing model.”
Expect to see more development of apartment-style housing in coming years and decades.
“And more moving away from detached housing investments,” he predicts.
Affordability problems will spawn more collaborative property buying including larger family groups pooling funds to invest, institutional investments and corporate ownerships.
Blue-chip property in parts of Sydney, Melbourne and Brisbane’s inner suburbs will lose its appeal with investors within the next decade.
This is because owner-occupiers are busy buying in these highly desirable areas and bunkering down.
“A lot of inner-city stock is going to owner-occupiers prepared to pay for that lifestyle and that’s pushing up prices and softening yields to the point that investors will soon be pushed out of buying those old rentable homes in suburbs like Glebe in Sydney and Carlton in Melbourne.”
Finally, to another trend tipped to gain momentum this decade, first-time buyers are increasingly bucking convention and choosing investment properties.
“We’re already seeing more creative ways to get on the ladder and start building equity from first homebuyers who are choosing to keep renting where they want to live and buying rental properties further away for lower prices.”
PROPERTY MANAGEMENT GURU – Fred Nucara, Beller Property Group
Beller Property Group co-director Fred Nucara expects to see a lot more second generation Asian immigrants investing in Australia’s property market by 2035.
“These buyers will be one of the dominant forces,” says Nucara, whose company manages almost 5,000 residential and commercial tenancies nationally.
“Australia is increasingly seen as an investment safe haven and I don’t see that changing.
“We’ll also see more intergenerational handovers of wealth, where parents and grandparents have done the hard yards and the adult children inherit these property assets.
“Those investors will be another dominant force in the housing market.”
But, according to Nucara’s predictions, while gifting today’s property portfolios to the next generation of Australians is “a fantastic launching pad” to further investment, some beneficiaries will blow their riches.
“They aren’t all going to get it right,” he says, “but nevertheless they’ll be a big force in the Australian property market in the next 20 years.
“We’re also going to see a generation quite comfortable living on credit, which is easily accessible and will continue to be, and that isn’t necessarily a bad thing but it does mean many will never buy their own homes, so we’re going to need and see more 50-storey apartment blocks going up and filling up with professionals who prefer to rent close to their city jobs.
“Simultaneously, expect to see better densities [of housing development] 20 to 25 kilometres from city centres, small controlled planning zones with mixed development, four to five storeys high, and less of these master-planned communities 50 kilometres out of the CBD, supported by schools, roads, hospitals and so forth, that all of us will have to pay for via out taxes.”
SENIOR SALESMAN – Andrew Cronis, Coronis Real Estate
Director of Coronis real estate sales network Andrew Coronis says the main issue on the horizon is the enormous change gen-Y is bringing to the industry.
“Today’s under 35s are truly changing the face of real estate as we know it for buyers, sellers, renters and investors,” Coronis says.
“Essentially, young buyers don’t operate the same way their parents and grandparents did.
“They’re accessing property sales in new, innovates ways – think buying through Facebook listings, using Occulus Rift to view houses and bidding through SMS and online portals such as Exchange House rather than at auction.
“The other big driver of change to the industry over the past 10 years or so has been the fact you don’t need a big cash deposit any more – and that will continue in the future.
“You can go out at 18 and get a credit card without a problem with a limit of several thousand dollars.
“It isn’t uncommon for a person aged 30 to still struggle to save up $4,000 or $5,000 in cash.
And this means, it’s not that they won’t eventually buy their own properties, but they’ll be slower than the generation before them, I’d say by 10 years or so.”
Other trends in the real estate sales game include more groups of friends chipping in to create a sizeable deposit to jointly buy property, and gen-Y becoming landlords before becoming owner-occupiers.
Both trends are predicted to strengthen by 2025 and be established by 2035. Coronis forecasts.
“Under 35s are truly changing the face of real estate as we know it for buyers, sellers, renters and investors” – Andrew Coronis
INDUSTRY OBSERVER – Mark Kelman, Property Investor and Author
Author and property investor Mark Kelman sees a bright future for investors with assets in regional cities by 2035 but “black swans” may also appear.
Meanwhile, populated areas near Australia’s major cities area at risk of being “swallowed up” by their sprawling neighbours.
“Regional centres will have grown if they have established themselves as small cities in their own rights with infrastructure, airports, transport links, roads and multiple industries,” Kelman says.
“I really believe it’s an exciting time to be looking at regional cities if thinking about long-term investment.
“But some smaller towns that aren’t satellite will have disappeared if they were founded on only one or maybe two industries, and other satellite towns will have been swallowed up by regional centres becoming suburbs of a nearby township.
“We’re seeing it in southeast Queensland and, if you look at New South Wales, there are a lot of towns up the coast that are all blurring together.
“Over the next 20 years this will have an impact on property values, demographic movements and job creation.”
Capital cities will become bigger, more congested, more densely developed and more expensive, Kelman predicts.
“Everything will have gone up in price because our dollar will have been even more devalued.”
Investors will still buy property with borrowed funds in 2035, but “money” may look a bit different.
It could be borrowed from offshore lenders within 20 years.
Physical cash will rarely, if ever, be used in futuristic property deals, Kelman says.
“There’s money to be made in all the markets and we’ll likely have had several disruptions to the property market, and definitely the share market, in the next 20 years. So, invest wisely.
“We don’t know what the black swan events – the big global disruptors – will be and most people can’t see them coming, although some did see the global financial crisis coming.
“So, the best way to prepare is to invest expecting to see big spikes and falls in properties prices over time and try to buy with enough cash flow to ride out any storms.”
This article first appeared in Australian Property Investor Magazine – Australia’s #1 Magazine for property investors and is republished with their permission.