Whether you’re buying your own home or investing, purchasing property at the wrong time in the market cycle can have a huge negative impact on your wealth. Whilst purchasing in a rising market can increase outlay, selling real estate in a slowing market can diminish property profits also.
Knowing where the property market is in its cycle is imperative, to help you avoid these risks.
There is no single property cycle in Australia. Rather, our country is comprised of hundreds of individual property market cycles, so that when one region is booming, another may experience a downturn.
Fortunately for investors, you can keep track of how markets are moving from a broad point of view via reputable sources such as property valuers, Herron Todd White. Its latest ‘Month in Review’ report provides a comprehensive overview of the current residential market in each of the 8 Australian capital cities:
Across the greater Sydney market, both units and houses are part of a rising market, although growth rates are much slower than the 12.8% recorded by CoreLogic in 2015. Investors may want to turn their attention to the west, such as the Liverpool city hub, which will be “the central focus point for living, working and entertainment in the south west region”, Herron Todd White reports. “With ease of access to the shopping centre, train station and schools, it has major attractions for both owner occupiers and tenants.”
Residential real estate in Melbourne is currently in a peak phase, having increased across the board by 11.8% in 2015 (CoreLogic). “With some banks stopping lending to foreign borrowers, the apartment market has begun to flatten and there are concerns about oversupply,” Herron Todd White cautions. Buyers may wish to consider the risk posed by units, and explore the potential of freestanding dwellings.
Due to a continued lack of investor confidence and a deflation in the Queensland mining boom, the city has “generally failed to fire at the level expected by most since 2012”, Herron Todd White has stated. It experienced capital growth of just 4% in 2015 (CoreLogic), and though many investors had their sights set on Brisbane being 2016’s boomtown, substantial growth has failed to eventuate. Instead, the city is in the grips of a two-phase market driven by a growing apartment oversupply – so while unit growth slumps, houses are beginning their recovery.
Houses in Adelaide are entering a rising market phase, however units are just beginning their recovery after a period of decline. Residential property prices are still the most affordable of all mainland capital cities, although perhaps not for long. REISA President Alex Ouwens points out that the median property price continues to rise each quarter, which is “evidence of the strength of the underlying fundamentals of the South Australian real estate market”. Adelaide’s median currently sits at $450,000.*
Unfortunately for current property owners, the Perth property cycle reflects that both housing and units are approaching the bottom of the market. For investors with a long-term view, however, the city could be viewed in an opportunistic light, with buyers able to negotiate strong discounts. Better still, Herron Todd White suggests that there are many areas with positive growth prospects. “From an investment point of view, the suburbs of Armadale and Kelmscott stand out,” they report.
In Darwin, both units and houses are approaching the bottom of the market. The median house price is down, although there are inexpensive investment opportunities to be found in the northern suburbs, the report advises. “The current dwelling market in the northern suburbs presents a great opportunity for purchasers looking to secure property around the $500,000 mark.”
The first half of the year saw an increase in demand for established dwellings, but many areas – such as Ngunnawal and Wanniassa remain relatively inexpensive. “The lazy half million can still achieve reasonably good value in both the north and south of Canberra,” Herron Todd White says. In terms of the market cycle, houses in Canberra are starting to decline, while units are approaching the bottom of the market.
Both houses and units in Hobart are at the start of their recovery phase. The city has enjoyed relatively stable economic conditions and capital gains due to a reduction in stock, while boasting some of the least expensive prices in the country. The median property price in Hobart remains very affordable at around $360,000, so as Herron Todd White notes in its report, “$500,000 can go a long way compared to other states”.
Overall, it’s clear that some areas are slowing or in decline, representing an opportunity for investors to buy. Other areas are already moving forward and recording growth, meaning buyers need to act fast to secure an investment before the market peaks and risk over-paying.
Regardless of the property cycle, always remember that an affordable investment doesn’t always constitute a good investment. Property investment to generate wealth is a long-term strategy, and various aspects should be carefully considered prior to purchase.