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The big property investment question – what lies ahead for real estate?

Where we are in the real estate cycle and what lies ahead for our property investment markets? That’s one of the most common question I’ve been asked lately.

My many years as a property investor have taught me not to try too hard to predict our markets year by year, but instead to take a long term view, then allow for cycles around this trend and be prepared for uncertainty, surprises and the unexpected.

However today I’ll share with you where I see some of our major property markets sitting on the proverbial “property clock”.

Firstly some context:

Of course there’s not one property market in Australia. Each state is at its own stage of the property cycle and each has multiple markets segmented geographically, by type of property and by price point.

Apartments are performing better than houses, luxury homes are not performing as well as median price properties and regional properties are in general under performing capital city dwellings.

However, there are opportunities in every market…

Remember, you are not buying “the market.” As a strategic investor you would be buying an individual property in that market that you would be happy to hold in your portfolio for the long term and one that was bought sufficiently below intrinsic value so that even if the market fell a bit further, you would still have bought well.

So let’s look at what’s happening around Australian property markets…

Sydney

While the overall market in Sydney has been flat over the last year, with median house prices down by around 1%, there’s growing confidence in the Harbour City.

After languishing for some years, the top end of the market is showing early signs of increasing demand, especially in the eastern and lower north shore suburbs.

While there is also increasing demand for houses in the middle and lower end of the market, over the last few years Sydney’s apartment market has outperformed the housing market with stronger rental and capital growth.

A good example of this is the strong demand from owner-occupiers for units in Sydney’s Inner West. A shortage of available “good” stock relative to demand is pushing up prices in these suburbs, which are going through gentrification.

Apartments in Sydney’s eastern, beachside suburbs and lower north shore suburbs are also performing well. However, buyers are being very selective and avoiding properties that are overpriced or apartments in secondary locations.

Strong rental demand, a shortage of rental properties, tightening vacancies and rising rents means investors will vie for the same apartments as owner-occupiers, underpinning prices.

The market for well-located apartments is likely to remain strong throughout Spring and this will be helped if interest rates fall once more as expected.

Melbourne

After falling in value over the first quarter of the year, the Melbourne housing market has been a bit of a surprise, performing better than many expected with prices rising around 3% over the last quarter, clawing back half of their losses.

Again different segments of the market are at different stages of the property cycle.

Builders and developers have gotten ahead of themselves and there is a substantial oversupply of newly built house and land packages in the outer suburbs, especially in the west and north. This will create downward pressure on property values in these locations and for properties in the first-home buyer category in general.

The top end of Melbourne’s property market is still quiet with an oversupply relative to the reduced demand for luxury property, however there is more demand for real estate priced between $500,000 and $900,000 in the inner- and middle-ring suburbs of Melbourne.

With too many new apartment projects under construction there is an oversupply of CBD and near city apartments at a time when there is less demand. This will put downward pressure on prices and rentals for apartments, yet interestingly Residex reports that house rents in Melbourne increased by 10.53% in the past year.

Many of the apartments that have been sold off the plan are coming on stream over the next few years and have been purchased by investors. Some will have difficulty getting finance and settling their purchase. Others will be disappointed to see the end value of their properties is less than their purchase price.

This oversupply of apartments will overhang the Melbourne market for a few years, causing prices to fall slightly.

However established apartments, with an element of scarcity such as Art Deco architectural features, are still selling well as there is limited supply in relation to demand for these types of properties in Melbourne’s bayside, eastern and south eastern suburbs.

On the whole though, I expect the Melbourne market to remain subdued for a while but, as in every market, there are some great buying opportunities, especially for properties to which you can add value through renovations and manufacture capital growth.

Brisbane

After a number of tough years, Brisbane median house prices fell 0.60 % and unit prices fell 0.61% over the last year according to Residex and is now hovering near the bottom of its cycle.

Buyers are lacking confidence to re-enter the market and are sitting on the sidelines waiting for signs that the market has bottomed before they make a purchase. Many were waiting for the resources boom to reignite their property market, but recent negative media has dampened their confidence.

However we’re seeing more strategic investors getting a foothold in the Brisbane market, recognizing that it’s a “buyers market” and taking advantage of countercyclical opportunities.

There is an oversupply of apartments in the Brisbane CBD and surrounding suburbs, with over 40 projects currently being marketed. Many of these apartments will remain unsold and this oversupply of properties will put downward pressure on prices and rentals.

The Brisbane detached house market is still languishing but on the way to bottoming out. House prices have dropped for the last few years in Brisbane but there are signs that the inner and middle-ring Brisbane home market is picking up with more buyers returning and many properties now selling under multi-offer scenarios.

All this means that Brisbane is entering the stabilisation phase of its property cycle, but prices are unlikely to start rising until 2013.

The good news for property investors is that house rents in Brisbane increased by 14.47% in the past year.

Perth

The Perth property market, which has been in a slump for the last 5 years, appears to be moving again with median house prices increasing by 3.17% and apartments by 10.05% over the last year according to Residex.

All the fundamentals are positive – Western Australia boasts the nation’s strongest economy, lowest unemployment rate and highest wages. Rents for both units and houses are rising and there is a shortage of accommodation for the increasing number of buyers and tenants.

It’s the old supply and demand ratio at play in WA. Population growth is strong and and levels of construction have been low for the last few years, so the cycle is moving on. And so are rentals. According to Residex house rents in Perth increased by 16.46% in the past year.

Adelaide

The Adelaide property markets are flat at present. Median house prices fell 2.45 % and unit prices fell 2.1% over the last year and median rents remained steady according to Residex.

Since the announcement of postponing any additions to the Olympic Dam project, confidence is waning as many locals were hoping this project would turn South Australia into the next big mining state. Unfortunately there is nothing in the wings to suggest this market will change in the near future.

Darwin

Darwin’s property markets have performed well, with median house prices increasing by 3.37% and unit prices by 5.95% over the last year according to Residex.

Darwin’s market tends to be volatile and seasonal but is underpinned by increased activity in the resources sector, especially offshore resources.

Canberra

Median house prices in the ACT fell 0.26 % and unit prices fell 5.47% over the last year according to Residex.

But the market may be turning as Canberra has low unemployment, relatively high public service incomes and a shortage of accommodation, especially at the cheaper end of the market.

Hobart

Residex reports that median house prices in Hobart fell 6.36 % and unit prices fell 6.68% over the last year, with median house price remaining unchanged.

While the Hobart property market has performed relatively well over the longer term, a weaker economy that lacks exposure to the mainland’s resources boom and its relative isolation suggests there are better places to invest in property.

In summary:

Looking at the Australian property markets I see the glass being half full, while I know a lot of people see it half empty.

There are some excellent property investment opportunities for long term investors. If you have a secure job and the ability to service a loan, and that’s become much easier recently, now is the time to consider buying a well located residential investment property.

Does that mean the markets have bottomed?

My honest response is…I have no idea – but the answer is probably not in some areas.

But my question to you is – “are we buying ‘the market’?” Clearly the answer is NO!

But all the latest figures suggest the market has bottmoed in some areas and is lcoe to it in others. An article in the Australian Financial Review shows that home values across Australia’s five largest capital cities are officially up 0.4 per cent for the 9 months to September 26 – the first time prices have been above their end-2011 levels this year.

What I recommend is that you consider investing in a property that you would be happy to hold in your portfolio in the long term and that is bought sufficiently below intrinsic value, so that even if the market fell a bit further you would still have bought well.

If you have a system, a great team of advisors, your finances organised and the right knowledge, now could be a great counter cyclical opportunity to buy good properties that will appreciate in value over the long term.

I’m going to explain exactly how I do this at my 2012 Property Development and Renovation Workshop.

Click here to check out the top line up of Australian property experts and find out more about the curriculum as well as the 9 FREE bonuses.

Please give yourself the chance to assess this opportunity properly – it will take about 10 minutes to read all the information.

This is likely to be the most important year for you to attend. While we can’t predict the future, we have lined up Australia’s leading experts to help you formulate a plan to protect your position and exploit the opportunities ahead.

You will have the opportunity to spend 3 days with:

• A leading property tax expert – who will show you how to legally reduce your tax and set up the correct structures.

• A top finance strategist – to show you how to beat the banks at their game.

• A property savvy lawyer – to explain how to protect your assets.

• A hands on property developer worth over 20 years of “real word” experience.

• A plethora of property experts, some who specialize in property renovations and development.

The intimate class room format of this workshop will give you plenty of time to ask your own personal questions of our faculty of speakers.

Use the online booking form to reserve your place or call Jo Fitt at our Melbourne office on 03 9591 8888 to discuss this further.

It’s up to you now – I look forward to meeting you in Melbourne and being part of this exciting workshop.



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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


'The big property investment question – what lies ahead for real estate?' have 6 comments

  1. Avatar for Property Update

    September 27, 2012 @ 8:46 pm Emma Collins

    Thanks Michael.
    That’s a great summary of what’s going on at present – it’s good to se a realistic view of our property markets

    Reply

    • Avatar for Property Update

      September 27, 2012 @ 8:50 pm Michael Yardney

      Thanks Emma.
      It’s interesting – this week someone emailed me saying I’m too pessimistic – I didn’t think I was.
      Usually it’s the opposite – people say I’m too optimistic and ‘can’t I see the bubble is going to burst?’
      You’ve chosen a good word – I try to be realistic

      Reply

  2. Avatar for Property Update

    October 2, 2012 @ 3:22 pm Ben

    Michael
    I like getting your emails, but I think there should be as much focus on Brisbane, Adelaide and Perth as there is on Melbourne and Sydney, although I think the generalistic comments about these cities is spot on. Perth it seems is the place to be, but Adelaide also seems to be a ticking time bomb (with the fuse always getting wet haha): everyone is acting like BHP have pulled out but in reality they are just rescoping the project to fit lower commodity prices, and there seems to be Chinese developers on every corner in the CBD, trying to appear igconito. I think the real question for Brisbane, Perth and Adelaide is: “what are the best niche markets for residential development?: eg: is it low cost energy efficient inner urban housing sub $320K ? and/or do the high end investors want a better product?”

    Reply

    • Avatar for Property Update

      October 2, 2012 @ 4:09 pm Michael Yardney

      Thanks Ben
      I’ll keep your comments in mind. I tried to give a national view in this article

      Reply


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