Let’s lay it on the line, shall we? We believe that anyone digging in their heels to protect past property mentalities is in for a surprise.
Post this cycle, we believe the Australian real estate market is likely to slow down, possibly significantly; and in certain locations; and for certain property types – values, sales and even rents could fall, possibly substantially.
We think this ‘reset’ could last for several years, maybe longer.
Many are already struggling with housing affordability. This trend is set to accelerate due to rising costs; limited wage growth; less full-time work and aging demographics.
But for the next year or so, we think it will be ‘business as usual’.
Politics, both here and abroad, plus the RBA’s room to further drop interest rates, is likely to keep things artificially afloat. No political party, regardless of flavour or country, has the fortitude to implement an austerity package.
But sometime in the near future this ‘pump priming’ will stop. For mine, we have two major problems – very high consumer debt and we are dangerously dependent on China. China has escalated its borrowing in an attempt to arrest falling economic growth and as result, two weeks ago, Moody’s downgraded China’s credit rating.
So maybe we face the cliff sooner rather than later?
Australia largely escaped from the GFC because we had a financial surplus and China, at that time, was growing strongly. This time around, we have very little to fall back on.
Soon, and maybe sooner than many realise, we believe that many Australians will be forced to compromise on their housing.
And if we are right, affordable compact housing – especially in major urban areas – should better weather the storm. Similarly, in regional locations and outer suburbs, properties with dual (or more) incomes look more promising than traditional detached housing.
More people are sharing accommodation and a key to getting a better rental yield is to hold property that facilitates sharing and/or attracts a higher paying tenant.
The astute passive investor will buy strategically for a rental premium; and not just buy a common property in anticipation of generic price growth. They will also buy a property with strong owner-resident resale appeal.
For the more active, land banking (at the right price) for future redevelopment or substantial renovation, should also pay dividends. In addition, some may opt to invest into those markets at the bottom of their property cycle – buying effectively below replacement cost – and holding for the long term.
Our reports, workshops, public presentations and communiques all carry this mindset.
Our Property Pick process showcases those projects and properties that we believe should better weather this storm and fit Australia’s medium to longer term housing future.
It is important to note that once we get through this reset, Australia’s medium to longer term housing and economic outlook improves.
To keep abreast of what we think and how things are changing, sign up for the Matusik Missive.