As we enter the new year, most of us will reflect on all that has happened and peek at our balance sheet to see if we did well these past twelve months.
When it comes to assessing our property portfolio, or the one we are vying to establish, to see when and where is the best time to take action, there is always the unknown that lies ahead. As such, we sought out a couple of experts in their markets to give us their view on how things are going and what we can expect for the year to come.
The Sydney market has seen very strong growth in the last few years off the back of record-low interest rates, strong demand, and positive market sentiment, explained Sam Elbanna, Managing Director of CPM Realty.
“However,” he continued, “currently, there seems to be a bit of a slower sentiment - except for astute investors and home buyers with vision.”
“Net migration remains high, adding to the 5 million plus populous of greater Sydney with its already-tight and prevailing housing shortage, which will see demand continuing to rise in 2018.”
Sam explained that some key factors on market sentiment, such as APRA’s edict to stop lending based on foreign income and to restrict interest-only lending to investors, have had an impact.
“Another key factor has been the media wording when describing a slow-down in growth, which has spooked the market,” said Elbanna. “Growth is growth, whether it is 5% per annum or 16%.”
While the reduction of overseas buyers has resulted in some relief for local buyers, demand still outstrips supply, he noted.
“Development of new apartments is being held back by government red tape, which is pushing out start times and restricting supply whilst demand keeps rising.”
“While there has been a slowing and more buyers have started to sit tight of late, in my experience, Sydney-siders tend to overreact to good and bad news alike. Once they get over their initial reaction, things will go back to normal pretty quickly. We have seen this time and time again.”
Elbanna argues that by the end of 2018, the banks will loosen up how they will lend money again and investors will step into the market with renewed vigour. Demand will start to increase because they will see the rental market is extremely hot, and prices will increase again.
“We experienced this phenomena post-GFC when everyone thought the world had ended, and massive line-ups at rental inspections became commonplace. The massive rental shortage of 2009/2010 ultimately meant that investors saw an opportunity and prices shoot up, and with it, more market activity starting a renewed chain reaction.”
“Now, we are seeing similarity patterns, and I predict we are getting to that stage again. You’ll see that rental market will go up quickly, investors will jump at it and prices will rise again.”
“My biggest fear is what is going to happen to first home buyers in the next 12 months," continued Elbanna. "They ought to get into the market in the next 6 months, before prices escalate and they are pushed out by heightened investor activity.”
Elbanna says that property prices will grow again, and wage growth can't keep up, which is when it will start getting tougher for first home buyers especially.
“Sharp investors tend to buy up first, but once the masses catch on, it will be a different ball game than what we are seeing now. The 'little hiatus' from the market we are currently experiencing just means it is the perfect time to buy into the market. Astute investors know this and are taking action. It is pure economics, really.”
“I expect that by the second half of the new year, we will see a spike in buyer activity, softening on lending criteria as banks want to maintain their market share. And for those trying to get into the market for the first time, the bar will be raised that little bit higher again.”
Marion Mays, who comes from over two decades in finance and lending, and is the chief investment mentor for Thalia Stanley Group, says that unlike in Sydney, the Melbourne market has been on a solid upward curve and is likely to continue this way.
“Market sentiment has been strong and, despite the changes in lending by APRA and claims that a lot of inner-city apartments are supposedly sitting empty, we have seen strong buyer activity and good returns for investors.”
“Property prices have been growing strong and buyer demand has not wavered over the past year despite changes to off-the-plan stamp duty obligations. For first home buyers, there have been better incentives and it has reflected in market activity.”
“I feel confident that we will see the current trend continue in 2018. Perhaps we will see some interest rate increases that could challenge those who are overextending themselves, but ultimately I suspect that we will see an ease on lending criteria later on in the year.”
“In the face of the age-old supply and demand cycle, I can calmly look into the future and know that this time in 2018, the sentiment will be just as strong and people that have not bought by then will look back and wish they had – much like many are doing now as they look back over the past year.”
“Property investing remains a mainstay and independent of other investments such as the bitcoin boom – brick and mortar has its place in every portfolio. What determines the success of the investment lies in when and how well one buys.”
“Yes, it is getting harder to identify the right investment, but there are more qualifying sources available to us nowadays if you know where to look. The most common mistake made by new investors is poor due diligence and hesitation which means time out of the market.”
“I am positive that we will see a solid year for property in Melbourne, and whether you are buying a home or investing, the sooner you get in, the better,” says Mays.
Without having a crystal ball to tell all, we can only look at past performance, the factors that have had their impact, reliable data sources and insights from experienced professionals to base our buying or investing decisions on.
Nobody can know for sure what the year ahead will hold for our property markets, yet if past performance is any indicator, we can look positively into the future.