Well, what an opportunistic market we are living in. With our companies combined investing experience of over 45 years, we have not seen a more opportunistic time than now to capitalise of the growth markets that are presenting right now!
So, where do we expect the market to head in the next 1-2 years?
Melbourne had a solid 4-year run (not record breaking) but solid. Melbourne is finding the bottom of its market which will be found in the coming 4-14 months where it will likely stay for a few years. The yield across the board is now sitting at a dismal 2.8 per cent gross. This is going to present headwinds for investors in this market over the coming three years.
With auction clearance rates now at the 50% mark, we expect the next 2 years to show minimal capital growth. Population growth is strong, and the economy is progressing nicely. We are expecting a growth range between -1 to 3 per cent in the next 2 years, depending on property type. The next three to five years are going to be very suburb-specific for growth.
Pure Property Investment (PPI) has limited its attention to the Melbourne market as we see it is now fully priced and cash flow is very limited.
It’s been a game of consolidation for Sydney, with investors who jumped into the market in late 2017/2018 being the worst effect in both poor cash flow and negative capital growth, Sydney is presenting as a market which will see further slippage (likely to be within -3 to 3 per cent capital growth over the coming few years). We called the top of the Sydney market back in July 2017 and history will show that we were just about perfect with our prediction.
The APRA restrictions have had their desired effect within the market and we are now seeing a distinct drawback from investor activity. With soft yields and 80 to 90 per cent capital growth over the past five years, Sydney now has a well-earned break on the sidelines. The talk of a bubble bursting or a crash however are most certainly not what the data dictates.
Sydney still has the lowest unemployment in the country along with a continued housing shortage deficit projected into the next 15 years. With a population predicted to be close to 8 million by 2045, and Sydney now being well and truly cemented as a global city, the high prices are here to stay. Sorry to be the bearer of bad news, but for those not in the market, the rent vesting strategy may well be a much more prominent strategy.
Our data suggests that Brisbane will continue to show a nice period of sustained growth into the coming 4 years and we are expecting capital growth of between 11 to 22 per cent (suburb and property dependent in that time)
Its limiting factor in the past has been state government commitment to large-scale infrastructure projects, however, with the re-election of the Annastacia Palaszczuk Labor government and with some sound economic news coming from the broader Queensland market, we expect to see a consistent growth market across the free-standing housing South-East Queensland regions.
Interstate migration has reached its highest level in over 15 years and the fear of oversupply if quickly abating. The free-standing housing markets in the north, West and East look very tempting indeed.
The sometimes-forgotten Hobart market has proven to be a fantastic investment area for our clients over the past 3 years with over 40 per cent capital growth and over 6 per cent gross rental yield for some of the investments we have made across this market in the past 3-4 years, the return has been sensational.
The Hobart jobs market has been firing of late with an 8.4 per cent increase in jobs over the last 12 months. Hobart clearly is leading the country in jobs creation data with Melbourne coming in a distant second, producing a 3.5 per cent increase.
There can often be a lag of 12 to 18 months before what’s occurring on the jobs front to direct property value increases, and we expect 2018 to provide a strong and consistent value growth along with low vacancy rates and strong rental yields.
Whilst we have enjoyed the spoils of picking this market early, we are now focusing our attention to other markets within TAS in the sub $300,000 price points with some excellent data showing some surrogate markets are now lighting up.
We are quite neutral on the long-term capital growth within the broader Adelaide market, with some of the large-scale manufacturing plants closing over the short term.
The announcement of the $50 billion submarine project and frigates contracts will provide a great boost with an additional 3,000 – 6,000 or so high-paying jobs flowing from this. However, this project has a 15-year horizon and as such we don’t see the benefits coming in until around 2019 to 2022. We expect the next 2-3 years to be better than average for Adelaide, in the 6-13 per cent range. Avoid the attached dwellings as the supply relative to demand still looks a bit overzealous.
We appear to be close to the bottom of the cycle in Perth, and the economy is showing signs of ‘green shoots’ which is giving us some confidence in the middle ring detached markets. We don’t expect this market to ‘boom’ in the coming 2-3 years, but most certainly show signs of growth between 5-8 per cent.
Keep a close eye on vacancy rates in the areas would may be considering along with the supply data and days on market data as Perth is currently very suburb specific.
Similar to Perth, we see the bottom has been found within the Darwin market and the income/vacancy rate data is starting to look somewhat attractive. Yields are strong and growth, but supply in the attached dwelling space is well above our comfort level and as such, the middle/inner ring housing markets are our pick.
Canberra continues to deliver investors a solid and stable return, with the past 3 years delivering over 20 per cent capital growth and the jobs market looking solid along with the shortage in supply.
We expect the next few years to provide investors an annual 4 per cent to 6 per cent return on the capital growth front, and rental yield looks to be consistent between the 4 per cent mark.
All in all, the past few years were above-average year across the Australian housing market. Our clients have enjoyed some excellent results and we are very confident in the long-term story for much of the Australian property markets.
The factors, which investors need to be more cognisant of into the coming three years, is cash flow. I’m not saying go out and buy regional properties with over 7 per cent yield, but to simply ensure that you are fully aware of your personal income versus expedites BEFORE you buy your next investment.
The banks are calculating serviceability on a much high level and this will prove to be a headwind for investors if they are not clear on their personal finances. Understanding cash flow in your investment properties factoring in a higher interest rate will ensure that you have a strong buffer in place.
Now is the time to reflect on the year that was and set your investment objectives to ensure that you make the next 12 months the most successfully and opportunistic we have seen in over a decade.