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Melbourne had the strongest home price growth over the last three months – but it’s unsustainable!

New data shows Australia’s Capital city dwelling values moved 4.2% higher over the three months to the end of August, the strongest capital gain over the three months of winter since 2007.

RP Data’ Hedonic Home Value Index shows that the best performer over winter was the Melbourne property market (+6.4%) followed by the Sydney real estate market (+5%).

Canberra real estate also performed well and values increased 2.5% there over winter.

The other capital cities  recorded more moderate conditions over winter with Adelaide values up 1.5%, Brisbane recording a 1.3% gain and Perth values up 1%.

A modest drop in values over the winter months was seen across Darwin (-0.6%) and Hobart (-0.8%).

Of course this is unsustainable

If you annualise this level of capital growth it is clearly unsustainable:

August Property Price Growth

Source: RPData, Australian Financial Review

I’m not suggesting we’re in bubble territory yet, but home buyers and property investors should not count on this level of capital growth continuing – it can’t!

We can’t keep experiencing double-digit capital growth at a time when inflation is around 3%, interest rates are at historic lows and our economy is relatively weak causing wages growth to remain low.

So what’s a property investor meant to do?

Don’t get me wrong

I’m not suggesting you should sit on the sidelines watching the market move ahead – I’m not – I’ve been actively still adding to my property portfolio.

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I still see a couple of years left in this property cycle which I feel will  keep rising until eventually rising interest rates slow this cycle down, as they have every other property cycle.

However I am suggesting that you do not just buy any property and hope it will rise in value.

And I guess I’m saying you should not count on strong capital growth continuing unabated.

Instead I would be very careful with your property selection only choose locations with will continue experiencing strong demand for properties from owner occupiers who are affluent and are able to, and prepared to pay a premium to live in those locations because of the abilities and lifestyle.

These more affluent inner and middle ring suburbs of our capital cities are likely to hold up better when the market eventually turns compared to outer suburbs will be more affected by rising interest rates.

Similarly I would avoid the blue-collar suburbs which are more likely to be affected by rising unemployment  as our economy turns from a manufacturing-based one to more service industries. 

It’s also  a time to consider buying the type of property to which you can add value through renovations or development, in other words manufacturing your own capital growth rather than waiting for the market to do it for you.

If you’re interested in learning the fundamentals of property renovations and development.

Why not join me at my  Property Renovations & Development workshop in Melbourne in October it’s Australia’s longest running advanced property workshop. I only run it once a year in a small group environment and it’s a training not selling event.

Please click here to get full details and reserve your place now.



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About

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


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