By Albert Sy
OUR residential property market has moved into a new era, from property boom conditions to a phase of slower growth.
The market has been subdued due to European debt problems and multiple interest rate rises that occurred towards the end of last year and falling consumer confidence.
With interest rates predicted to fall and property values improving, property is set to be a more attractive investment this spring as investors seek safe havens from sharemarket volatility.
At least that is the view of industry experts who also point to recent sharemarket shake ups, which continue to batter investor confidence, as a major reason for the increasing allure of property.
Yes, we have moved into the next phase of the property cycle. Last year, properties in some of our suburbs increased in value by over 28%. Many of us stopped thinking of our home primarily as shelter but as a mean to leverage against acquiring long term property investments thus creating wealth to fund a comfortable retirement.
We started thinking of our homes as a very large automated teller machine full of money inside. This has been created by rising property prices thus creating substantial equity over the years.
Many investors need not be concerned, but to look at this as an ideal opportunity to take advantage of the current market conditions, as we predicted in 2008, exactly the same will reoccur in the next three to five years as we move through the economic cycle. Be assured that the property market is behaving
normally as we reach the mid cycle slow down. The good news is rental demand is on the increase as we are facing a shortage of rental properties and investors/landlords will have little trouble finding tenants in good areas. However investors/landlords must be cautious not to make a rise too quickly and you lose a good tenant. It’s a balancing act, treat them fairly and set a market rent that is fair for both parties.
Again, Von Thunen’s theory (an Austrian Economist in 1850) who has clearly explained that the highest rent, the highest gain in capital value is realized in those areas closer to the centre of large metropolis city, like Sydney and Melbourne.
The property markets have always moved in cycles of rapid upward movements, followed by periods of flat or even negative growth and then followed by another move upwards. This has exactly happened in Melbourne in 2004, 2007 and again in 2011, when much is written of a Property Crash or when will the Bubble Burst?
Well sorry guys this is not going to happen in Australia for the foreseeable 15-20 years. Yes we will get the corrections every 3-5 years. It is important that this happens as no market can sustain growths of 12 to 28% per annum.
Affordability and constraints, UNLIKE Sydney which doesn’t have the land availability constraints as Sydney is bound by the sea to the north and the blue mountains to the south, Melbourne has substantial land availability within a 25 Km radius.
POPULATION growth in Melbourne’s west has quadrupled in a decade, making it one of the fastest-growing areas in Australia, research shows. The growth in areas such as Melton, Werribee and Wyndham Vale has been attributed to housing affordability.
Victoria’s Parliament recently expanded Melbourne’s urban-growth boundary by 43,600 hectares, with large expansions in the west.
The latest RP Data reports that Melbourne has been the stand out capital growth performer where values have increased by 47.4% and has experienced a small correction of -2.9% giving us a total growth of 11.2% yearly for the last 4 years. Further this reinforces the standing statistics of capital growth 9% per annum over last 100 years of capital growth in Australia as predicted by the Statistics Melbourne has an extreme short supply of around 200,000 dwellings. We need around 160,000 dwellings every year whereas we are building only 135,000 thereby adding a further burden of 25,000 dwellings to our existing short supply of 200,000 dwellings.
And, even if The Reserve Bank of Australia (RBA) continues to increase interest rates, it will only make the situation worse, as past history has proved, the housing and rental market will only increase dramatically with marked inflation and higher rental.
Real Estate investors in Melbourne should be aware that the prime reason for investing in property is capital growth, and capital growth is driven by the scarcity of an asset. When selecting a property for capital growth, there should always be a consistently greater level of demand than supply. Statistics prove that supply will not be sufficient to meet projected market requirement in the whole of Australia until 2020.
