Now we are past the half way mark for 2016, it is clear that 2015 was a great year for savvy investors in cities like Melbourne and Sydney, where prices grew between 10 and 20 per cent (Australian Bureau of Statistics). So are we to expect more of the same? With investments in several Australian markets, here are my thoughts on where we are heading for the remainder of the year.
The first topic we need to cover that’s stealing the show right now is Britain and their decision to leave the European nation, and in turn its effect on Australia. No one has a crystal ball here, and there’s a lot of talk coming from both sides of the coin in regards to what this means for our economy and property market, but given that Australia is seen as a safe haven due to our stability and economic growth, this may attract overseas investors that would have once put their money in the UK but don’t want to risk the present volatility. Plus we have already seen huge jumps in the Australian share market which may also have investors move their money into property for the time being.
Sydney & Melbourne
After the growth spurt we have seen many ask if this will continue. While there are still micro-markets within these cities where you can still find good growth, on the whole I expect that we will see softer growth as these markets reach the end of this growth cycle. Prices are overtaking household serviceability, with many areas now seeing properties over the $1 million mark, so I expect these areas to stay flat for some time now.
In terms of the rental market there is a lot of new high density and outer development happening in Melbourne which is affecting rental yield growth. On the other hand, in Sydney where we are seeing a shortage of rental accommodation, so I would think that rental prices will start increasing in Sydney.
Other Capital Cities
Perth and Darwin are driven by the resource sector, with that in a downturn there is nothing to drive growth there. Looking to Hobart and Adelaide, these cities don’t have the fundamental economic and demographic drivers in place for any real growth right now, and I believe will remain steady.
Where to Buy?
With the Sydney and Melbourne markets hitting the peak, educated investors know to stay away while at the top of this cycle, unless you can get your hands on an entry level blue collar property priced below market value with positive cash flow.
For investors looking for the next boom my sights are on metro Brisbane and the Gold Coast. These areas were hit hard by the GFC and haven’t quite recovered, but there are early signs of that changing. You can still buy properties cheaper than you could pre-GFC, sometimes even cheaper if you were to build. Good rental yields are also making for positive cash flow investments. It is important to remember that there are micro-economies in each of these markets so thorough research and evaluation is needed before inking a deal.
Regional and Mining Towns
Mining areas are always risky and not great for the foundation of a portfolio, ideally you want to buy them early on and sell them before the market retreats. Do not hold onto them. Similarly, I haven’t seen many regional areas with significant industry or infrastructure in the pipeline to encourage growth. There will always be towns that outperform and surprise you, but it’s difficult to pick them ahead of time. To be safe, buying within a 1-hour commute of a major city is the most consistent predictor of growth and stability.