What’s ahead for property in 2015?

 At the end of each year I like to look for a label to describe our property markets and this year I plan to call 2014 ‘The Year of the Property Investor’.

The year finished with property investors taking out around 50% of all new loans, the highest percentage on record and many investors had a great year.key 2014

Australia’s property markets enjoyed a positive 2014 buoyed by strong population growth, historically low interest rates, a voracious appetite for capital growth by investors and the desire by overseas investors to place their money in Australia’s large capital cities.

However not all property investors did well!

Unfortunately many complained that “the property boom passed them by.”

sydney opera house

This was because our markets were very fragmented and if you didn’t own the right type of property in the right location, you probably would not have enjoyed significant capital or rental growth.

Clearly the standout performers for 2014 were Sydney where home values increased by 13.2% and Melbourne where home values rose by 8.3%.

Over the year home values were 6.0% higher Brisbane as well as rising in Hobart (+5.2%), Adelaide (+2.8%), Canberra (+1.7%),Perth (+1.4%) and Darwin (+1.4%).

But now the impact of the lowest interest rates in 60 years is dissipating with price growth peaking mid year and capital growth is likely to moderate in 2015 due to the soft outlook for economic growth, rising unemployment, ongoing job security concerns, lower consumer confidence and sluggish household income growth.

While there are still positive factors that will affect our markets next year, there will be some stumbling blocks and potential landmines along the road, so let’s:

  1. First take a big picture overview of what’s likely to happen over the next year or two, then…
  2. Look at some ways to protect yourself from the turbulent times ahead,

First the good news ahead:

The positive factors for our housing markets in 2015 include:

  • Continuing strong population growth in our capital cities, albeit at a lower rate than in previous years. According to the Australian Bureau of Statistics, currently Australia’s population grows by one person every 77 seconds, driven largely by international migration.
    This means our population grows by around 400,000 people each year. Of course many of these want to live in the same 4 big capital cities (and in particular in Melbourne and Sydney where many of the jobs are), which means demand is likely to outstrip supply in our inner and middle ring suburbs.newspaper
  • Interest rates are likely to remain at historic lows throughout 2015 and it’s quite possible we’ll have another fall or two in official interest rates.
    At the same time banks are continuing to aggressively chase new business, meaning more people will be able to afford to enter our property markets.
  • Confidence in our property markets and a feeling that of missing out, whether as a home owner or an investor, will mean more Australians will try and get a foothold on the property ladder before prices increase further or borrowing conditions turn less favourable.
  • Overseas investors will keep looking for a safe haven for their money and continue investing in Australian property. The low Australia dollar is likely to encourage overseas investors to keep ploughing their money into new and off the plan high-rise apartments in our capital cities. This will continue at a time when we already have an oversupply of this type of property and will further inflate the price of inner CBD properties.
  • The wealth effect will kick in with existing property owners (particularly in Melbourne and Sydney) feeling better off as the value of their homes have risen significantly over the last few years.
    Some will use this extra equity to move home or invest in real estate.
  • Buying in Self managed Super Funds may accelerate in the first part of 2015 as the government contemplates removing the ability of SMSF’s to borrow to buy property as recommended by the Murray Financial Systems Inquiry.
  • An improving local economy in the second half of 2015 will increase consumer confidence.

Potential stumbling blocks for our property markets.

But it won’t all be rosy.

questionmark_house

I see consumer confidence falling in the first half of 2015 which will have a negative impact on our property markets.

Fact is: Australians will keep hearing negative news about the world’s problems – China’s economy slowing down, the European economy being a basket case, deflation around the world, wars etc.

And locally we will be worried about rising unemployment, a weak economy and a government that can’t deliver its budget.

This means the media is going to have a field day with negative commentary and the average consumer will keep their hands in their pockets and not spend, particularly on big ticket items like upgrading their homes or buying investment properties.

Some possible X- Factors:

Economists refer to ‘an X factor’ when an unforeseen event or situation blows all their carefully laid forecasts away. Every year we get lumbered with an X factor (or two) that comes out of the blue to surprise us.

The_X_Factor_logo

Potentials for 2015 include:

  • APRA introducing Macro Prudential Controls limiting investor finance.
  • Changes in the ability for Self Managed Super Funds to borrow to buy property investments as recommended by the Murray enquiry.
  • An X factor that we don’t know about – otherwise it wouldn’t be an X factor. And I’m not talking in riddles – we have an X factor virtually every year, so be prepared.

So what should an investor do?

Firstly be careful…

Lower overall capital growth, more in line with the rise in wages or disposable income, means that investor mistakes won’t be covered up by strongly rising markets.

Remember Warren Buffet’s great saying: “A rising tide lifts all ships, but when the tide goes out you see who’s swimming naked.”

However I see falling consumer confidence and lower buyer demand for properties in the early part of 2015 as a potential opportunity for investors with a long-term focus.

Remember Warren Buffett also said: “Be fearful when others are greedy and the greedy when others are fearful.”

In other words there is likely to be a window of opportunity for property investors with a long-term focus to take advantage of a time when others are sitting on the sidelines.

Where will the opportunities be in 2015?

Clearly our property markets were fragmented in 2014, performing strongly in Sydney and Melbourne while other regions languished.

In fact they were even more fragmented than this – with only certain regions in these 2 big capital cities performing strongly.

[sam id=50 codes=’true’]

I see this trend continuing in 2015, as property markets in new homebuyer locations, blue-collar areas and regional Australia underperforming in line with a weaker economy, rising unemployment and job uncertainty.

On the other hand there will still be a large group of Australians with rising disposable incomes because they work in the type of industries that will still be growing strongly.

In general these people will work and live in the inner and middle ring suburbs of our big capital cities.

These are the property locations that should still perform well in 2015.

What Property Investment Strategies won’t work in 2015?

The strategies that won’t work in 2015 include:

  • Hot spotting – in other words looking for “get rich quick” locations. Of course this has never really worked. The landscape is littered with casualties who invested in previously touted hotspots such as Mandurah, Muranbah, Port Headland, Gladstone and Cairns.3$houses
  • Buying generic apartments in large high-rise off the plan projects – there is an oversupply of this type of property looming especially in Melbourne, Brisbane and Sydney. Lack of capital and rental growth will make this type of property a very poor investment.
  • Buying house and land packages in the outer suburbs. These, typically first homeowner locations, are likely to underperform as many people living in these locations are already struggling a little with their mortgages and are likely to continue to do so next year as our economy stumbles along and wages growth remains low.
  • Buying properties in regional Australia where economic growth will underperform the powerhouse economies of our capital cities.
  • Buying properties in mining towns where investor demand has waned.

Some tips to maximise your property profits in 2015

Personally I’ve taken advantage of the opportunities the property market has presented me and purchased a significant number of properties this year and plan to do so again in 2015.

To ensure I buy a property that will outperform the market averages I will continue to use my 5 Stranded Strategic Approach. 

  1. I only buy the type of property that would appeal to owner-occupiers. Not that I plan to sell my property, but because owner-occupiers will buy similar properties pushing up local real estate values.
    This will be particularly important in 2015 when the percentage of investors in the market is likely to diminish.
  2. I would only buy a property below its intrinsic valuethat’s why I avoid new and off the plan properties that come at a premium price.
  3. I buy in an area that has a long history of strong capital growth and that will continue to outperform the averages because of the demographics in the area.
    This will be an area where owner-occupiers will want to live because of lifestyle choices and one where the locals will be prepared to, and can afford to, pay a premium price because they have higher disposable incomes.
    In general these are the more affluent inner and middle ring suburbs of our big capital cities
  4. I would look for a property with a twist  – something unique, special, different or scarce about the property, and finally
  5. I would buy a property where I can manufacture capital growth through refurbishment, renovations or redevelopment rather than waiting for the market to deliver me capital growth.

In conclusion:

It’s likely that 2015 will be a difficult year for some property investors.

However I’ve noticed an interesting phenomenon; some investors do well in good times and continue to do well in difficult times. On the other hand some investors do poorly good times and even worse in bad times.

house moneyNow that’s interesting isn’t it?

What’s the difference between these two groups of investors? It’s not what most people think.

Sure knowledge is important but that’s not enough.

Successful investors are financially fluent, have a good team around them, treat their property investment like a business by holding themselves accountable and regularly reviewing the performance of the portfolio, and most importantly they have the right mindset.

I hope 2014 has been kind to you in all aspects of your life including your property investing and I wish you even more success 2015.

While I’ve tried to point out some of the risks ahead, the real risk is what creeps up when you think you’ve covered all your risks.

Let’s see what the X-factor for 2015 will be.



Want more of this type of information?


About

Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been once agin been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'What’s ahead for property in 2015?' have 12 comments

  1. December 19, 2014 @ 9:42 am John

    Hi Michael,

    Good summary and forecast for 2015.
    I was wondering what you thought the X-Factor for 2014 was? The May budget perhaps?

    Regards
    John

    Reply

    • December 19, 2014 @ 10:37 am Michael Yardney

      John
      I think the severe drop in consumer confidence so early in the term of a new government was a significant X-Factor – and you’re right – the budget had a bit to do with that

      Reply

  2. December 19, 2014 @ 11:22 am Ed

    Great summary Michael. I enjoy your insights and very helpful in putting things in perspective. .
    You give a good balance to other doomsayers who come from overseas (generally the USA) and have no idea about Aussie property but whose main aim is to flog their books.
    I like your calm measured sensible assessment of the industry based on aussie fundamentals and facts and not the scaremongering by others to sell their books.

    Reply

  3. December 27, 2014 @ 10:25 am Ronnie Lai

    Great information here Michael!!! I have been following your youtube video for a while read one of your books and I think you have great insight into property investment.
    However, there is one point that I would like to argue about is that I think “Hot-spotting” is in my opinion a great property investment strategy with good research. Here are some examples from my experience:

    1) I purchased an investment property in Glen Waverley as I have predicted the fact that it would become a hub of all wealthy Chinese people which will push up the property prices, due to good schools and amenities. Over the year the property has experienced significant increase in value and I believe the trend will continue to grow due to weaker Aussie dollars and more overseas buyers coming to Australia.

    2) My cousin purchased an investment property in Springvale a couple of years ago after learning about the renovation the train station and re-zoning of the suburb. His property value has also gone sky-rocket over the year and enjoyed great capital gains.

    3) One of my family members have also recently purchased a property in Wantirna area right opposite the Knox shopping centre after learning about the 450 mil extension of the Westfield shopping centre. His property value has also grew significantly in just 6 months time.

    In conclusion, I think “get rich quick” suburbs do exist but it does require good analysis, research and a bit of luck. I agree with your thoughts that 2015 will be a tough year for the secondary suburbs but will still be a great year for the “investment grade” properties!!!

    Ronnie Lai

    Reply

    • December 27, 2014 @ 1:03 pm Michael Yardney

      Ronnie
      I agree with you, but this then has a lot to do with getting the timing right, not easy for the average investor

      Reply

  4. December 30, 2014 @ 2:38 pm JG

    Mandurah gets a mention here….I have property there because I wanted to move back to the town I grew up in. We ended up moving away for study interstate. Mandurah has taken a while longer to get over the GFC (the fast train to Perth took longer to complete than expected and by the time it was finished, the GFC kicked in and affected growth.) However, the property market has very much improved in the past year, and still has a lot of room for reasonable growth. There is continuing and most likely unabating population growth, and the fast train is just 45 min to Perth. It also has a beautiful estuary and beaches and a great, relaxed lifestyle.

    Reply

    • December 30, 2014 @ 2:43 pm Michael Yardney

      JG
      I was not suggesting Mandurah is not a nice place to live.
      What I was saying is that it was touted as a hot spot but has under performed the Perth market – remember by my criteria less than 1% of properties are “investment grade.
      While those who bought in Mandurah are waiting for their properties to increase in value, other strategic investors have used their increased equity to buy 2 or 3 more properties

      Reply

  5. July 10, 2015 @ 3:14 pm Quazi Faruqui

    Michael
    Thanks for analysis. I am planning to buy an investment property and i have 2 options – Mandurah and Peregian spring (sunshine coast). Which option do you is better?

    Reply

    • July 10, 2015 @ 4:26 pm Michael Yardney

      Quazi
      Sorry to be blunt I wouldn’t invest in either of these locations – whith what’s ahead for our economy I’d only invest in a big capital city

      Reply

      • July 30, 2015 @ 12:18 am Jessica

        whats your opinion on perth. I was looking at houses in south perth, or apartments with city views. The area has good schools parks and you can walk to the cbd.

        Reply

        • July 30, 2015 @ 7:46 am Michael Yardney

          Jessica
          Most analysts believe it will be another 18 months or so before the Perth market picks up and there could be some further falls to come

          Reply


Would you like to share your thoughts?

Your email address will not be published.
CAPTCHA Image

*

0
0

Michael's Daily Insights

Join Michael Yardney's inner circle of daily subscribers.

NOTE: this daily service is a different subscription to our weekly newsletter so...

REGISTER NOW

Subscribe!