Interest rate rises, inflation, new legislation, a new post-pandemic reality, amongst many other factors are now coming to play! What will the impact of these be on the Australian Property Market? What can we expect to see in the short and long term?
Peter Koulizos has been teaching real estate and investing for over 20 years. He regularly contributes to numerous newspapers, magazines, and channels. His extensive research, publications, and experience have earned him acclaim across the nation for his property knowledge. Today, he has joined our very own Marissa Schulze to answer these and many more questions for you!
Ready to get started? Here is a breakdown of our discussion’s highlights. Feel free to fast-forward and browse through the chapters in our video for greater detail!
Interested in exploring how the Property Market has performed historically? Download Peter’s free report here!
What is happening in the Australian Property Market?
- The Australian property market is currently slowing down in growth. Last year, the nation achieved a growth of over 20%! A fantastic (but unsustainable) percentage in the long run.
- Sydney and Melbourne are now experiencing a drop in property prices.
- Adelaide and Brisbane are the two top performers. Prices continue to increase but are now doing so at slower rates. By the end of the year, it is estimated that both might continue to achieve roughly 20% growth
- Adelaide is likely to be the best-performing city this calendar year! Experiencing 11% growth from last year already, it is likely to achieve growth above 15% by the end of 2022
What has driven such growth in Adelaide?
Some of the factors supporting growth in Adelaide’s property market include:
- The pursuit of cheaper areas to relocate to. Adelaide’s property market is one of the most affordable ones in Australia. Property investors and first home buyers are more likely to find better-located properties with greater land sizes than they would in other states
- An increase in interstate migration that resulted from covid. With more flexible “work-from-home” opportunities, people are now able to choose where they live. This made considering or returning to Adelaide easier, increasing demand in the property market!
- An increased focus on lifestyle. As buyers prioritize their lifestyle (due to more flexible work conditions and shifts that resulted from the pandemic), Adelaide properties have become increasingly attractive. Greater land areas and more affordable housing have made Adelaide’s property market a great one for buyers nationwide.
- Rental returns. Adelaide’s rental returns have experienced significant growth during the past years. In a market in which demand is almost at par (if not greater than!) supply, purchasing property for rental is a very viable alternative.
What will be the impact of current Interest rate rises on the Australian property market?
Interest rate rises often occur when the economy is going well and inflation is on the rise. Although it certainly is a factor that can and will affect the property market, it is important to understand that it is not the only factor that will come into play.
Rising Interest rates are likely to slow down the acceleration of property prices, but the Australian property market’s behavior will also be influenced by many other forces too.
At this stage, we are facing an environment of rate increases that had not been experienced by a whole generation of buyers and investors. Rate rises had not been the norm for the past 12 years.
What can we expect for the next 5 – 10 years?
Typically, you would think if inflation is low, interest rates will remain low and property prices won’t be increasing at rapid rates. However, property prices also depend on people’s incomes, and if people’s incomes grow and they are able to spend more, property prices might be forced to increase,
During the next 5 – 10 years, there is no doubt that property prices will continue to go up, as has been the trend. The real question here is, at what rate?
Considering how well Australia coped with covid and what this means for internationals, it is likely that growth in the property market will be fueled by migrants down the road, whether it be through permanent migration and subsequent purchase of new properties, or by generating an important increase in demand in the existing rental market.
If price is a big concern for you, learning how you can position yourself in the right place for house price negotiation may help ease the anxiety that often comes with forecast uncertainty and constant changes in the property market.
Timing vs. Time in the market
Peter conducted an extremely interesting study comparing what would happen if you bought a property and held it for 20 years, versus the outcomes you would have with a buy-and-sell strategy purchasing every 5 years at the best performing capital cities.
The study resulted in roughly 500 different possible outcomes. Of these, very few actually beat the results of adopting a buy-and-hold strategy for 20 years. Assuming you knew which cities would have an amazing market performance, the chances you would actually make gains were still not as high!
With a buy-and-sell strategy, transaction costs are often to blame. Costs like stamp duty, and capital gains tax, amongst many others, usually affect your gains significantly. In the unfortunate scenario that your guess on the best-performing markets was inaccurate, the study revealed you would actually lose money after 20 years.
Our key takeaway? Borrow as much as you can and buy as much as you can, as early as you can.
Your dedicated Rise High Broker is always here to support and guide you through the process, so you can get on the market and enjoy as much time in to capitalize on your investment!
Are other states likely to follow NSW’s No Stamp duty but annual fee initiative?
Although at this stage it is uncertain, it definitely is a great initiative that encourages and supports First Home Buyers. By decreasing the amount of savings buyers must have to enter the market (requiring only deposit costs to be covered), it is likely to support growth in the property market.
Other states have widely been discussing the implementation of initiatives like this, and the fact that it has now been implemented in NSW suggests there are early positive signs of the impact it will have in the market.
Are there good buying opportunities at the moment?
In line with Peter’s study on timing vs time in, we would dare say the greatest buying opportunities you will come across are right here!
If you are looking to buy and hold a property for the long run (which you definitely should), choosing to purchase today is your best choice (your second best would have been 20 years ago… But that has passed!). Property is extremely unlikely to be cheaper tomorrow as the market continues to grow.
If you purchase the right type of property in the right suburb, you are well on your way to building long-term wealth!
Where should investors be looking to buy and what should they be looking for?
What are we talking about when we mention the right type of property and the right suburb?
With gentrification, you would be looking at areas in which people didn’t want to live in before, that are in close proximity to the city or the sea and have a high concentration of character properties.
These types of areas often attract white-collar professionals who have the income to renovate and rent. Some great areas in Adelaide you could be considering include Mile End, Torrensville, Richmond, and Kilkenny, or Christies Beach, Port Noarlunga, Port Noarlunga South depending on your borrowing capacity and budget.
When it comes to property types, our best advice is to stay away from units and apartments. If you can’t afford to buy a house, waiting might be best.
Are there particular suburbs that you think might decrease in value with Adelaide rate rises?
Interest rate rises might affect suburbs in which people bought holiday homes. Areas like Kangaroo Island, Victor Harbour, or any other suburbs with Esplanade properties, might not sell as competitively in the next 3 years. They have been enjoying the benefit of high demand that a great economy and low-interest rates have been providing so far.
Besides Esplanade properties, the other types of properties that typically drop in value are apartments.
With property prices dropping in Melbourne and Sydney, will that happen in Adelaide too?
Adelaide’s property market experienced a growth of 23% last year. For property prices to drop, we would have to experience a 24% drop! Which is highly unlikely.
Although we do expect the market to slow down and high inflation is likely to impact other areas of the economy (like retail and food and beverage), people will continue to repay their mortgages. Unless high unemployment strikes (an unlikely event too as our record is in really good shape), a dip in property prices is not on the horizon!
Are you interested in exploring how the Property Market has performed historically? Download Peter’s free report here!
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