Is entering the property market nuts right now?

Unless you’ve been living under a (probably very expensive) rock for the last couple of years, you may have noticed that trying to crack the property market is next to impossible if you’re a new investor. Historically low interest rates and generous tax concessions for investors are just two of the more obvious reasons why the East Coast property market is gangbusters at the moment. But this begs the question – what other macro factors have contributed towards the surge in price growth over the last few years?

Incredible Population Growth Throughout Metropolitan Areas

Melbourne’s reputation as a cultural hub and mecca for sporting fans nationwide, combined with the fact that Victoria’s economy is finally starting to get a roll on, has led to an increase in people both within the state and outside its borders flocking to the city. Its rating as one of the most liveable cities in the world also does nothing to hurt its appeal.

Population growth throughout Victoria in 2016 was focused mainly in Greater Melbourne and essentially blew away all previous records. Although it’s hard to nail down exact figures, it’s estimated the state now boasts 130,000 new residents as opposed to New South Wales’ tally of roughly 105,000.

A swell of fresh faces gracing Melbourne’s property market is equivalent to adding fuel to an already roaring fire. The only thing that may stymie price growth in the capital could hinge on The Reserve Bank of Australia’s prediction that 16,000 apartments will be completed in inner Melbourne over the next 2 years, emboldening the argument for oversupply. Of course this is possible, but with Melbourne’s population growth rate at 2.1% (the highest amongst the capitals) with no sign of slowing, it’s safe to say drastic price changes will be mitigated.

Historically Low Interest Rates on the Property Market

Interest rates have been falling for the last 6 years, and currently stand at 1.5% – the lowest they’ve been in history. This is good news if you’re a new property investor looking to borrow money to begin a portfolio, and even better news if you’re a homeowner. Why’s this a good thing if you’re thinking of selling though?

Low interest rates have also created a highly competitive climate and draw in purchasers that may not have been able to borrow money for a mortgage nearly 10 years ago. At the risk of oversimplifying – more qualified buyers in the market will invariably contribute towards higher prices. This may be coming to an end though, with some major banks tightening lending conditions for investment purposes, and the RBA hinting that another drop is unlikely.

An Undersupply on the Property Market Of Dwellings Being Built

New South Wales has been one of the hardest hit on the East Coast by an undersupply housing in 2016. This is due in part to a combination of factors that include a slow outflow rate of residents leaving the state and a high amount of people resettling in NSW. Not to mention the chronic shortage of homes and units being built in the last decade that’s created a backlog of cashed up buyers with no where to go.

This means that even though the construction industry is working overtime, the 56,000 estimated dwellings built in NSW in 2016 wouldn’t satiate the underlying demand. ANZ senior economist David Cannington believes that there’ll be approx. 63,000 new homes in 2017 – still leaving a shortfall of 7,000. Essentially less homes and units for sale with sustained demand has contributed towards the impressive performance for the East Coast property market.

Limited Amount Of Affordable Properties On The Market

Fewer properties on the market has led to increased competition; something I’m sure first homebuyers throughout the East Coast of Australia can attest to. Hobart for example is a clear example of this trend, with homeowners more likely to stay put and renovate rather than move. It’s also led to a atmosphere of emotional buying that’s driving up prices and making some areas a no go zone for capital growth investors looking to make a profit.

Subsequently the average days on market has fallen in places like Hobart. By using November 2016 as a yardstick, the time from when a home is listed until it is sold has dropped from 90 to 58 days. Not quite half, but enough that investors are feeling the pinch.


Resources:

  1. Pete Wargent, 18th December 2016, “Why Melbourne’s Property Market Is So Strong”, http://propertyupdate.com.au/this-is-why-melbournes-property-market-is-so-strong/.
  2. David Lane, 5th August 2016, “What Low Interest Rates Mean For Investors”, http://www.smartcompany.com.au/finance/wealth-management/73592-historic-low-interest-rates-mean-investors/
  3. Jessica Irvine, 25th March 2016, “NSW Housing Shortage At Unprecedented Level”, http://www.smh.com.au/business/nsw-housing-shortage-at-unprecedented-level-20160325-gnr37f.html
  4. Angela Ross, 14th November 2016, “Hobart’s Hot Property”, http://www.abc.net.au/news/2016-11-14/no-signs-of-slowing-in-hobart-property-market/8022908
  5. Michael Janda, 17th January 2017, “Property Investors Lead Home Loan Surge”, http://www.abc.net.au/news/2017-01-17/property-investors-lead-home-loan-surge/8188296
  6. http://www.abc.net.au/news/2017-02-01/home-prices-keep-rising-in-january-corelogic/8228642
  7. Michael Janda, 2nd February 2017, “House Prices Rise, Affordability Expected To Worsen Despite Property Slowdown Later This Year: CBA”, http://www.abc.net.au/news/2017-02-01/home-prices-keep-rising-in-january-corelogic/8228642

 

Similar Articles

Queensland is back at the top for investment

Queensland is back at the top for investment

Not since 2007 has Queensland had such strong economic indicators. Brisbane and...

Read More

Suburb Profile – Ormeau QLD

Suburb Profile – Ormeau QLD

📍 Consistent capital gain increase from 2013 📍 Consistent...

Read More

Auction results down, Auction numbers down

Auction results down, Auction numbers down

Auction results back below 60%, consistent but much lower than the 70% rate 12...

Read More

Don’t miss out, download the ‘How to guide: Investing in Australian Property 2017’