We believe that anyone digging in their heels to protect past property mentalities is in for a surprise.
Post this cycle (2008 to 2016, but most likely 2017), 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 these sluggish conditions could last for several years, maybe, longer.
The reasons why are many and include:
For the next year or two 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 party, regardless of country, will get elected on an austerity package.
But sometime in the near future this ‘pump priming’ will stop. The catalysts are many and will likely come from abroad and increasingly from China as its borrowing escalates in an attempt to arrest falling economic growth.
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. Our eight point list illustrates how brittle, economically and even socially, we have become.
Many haven’t done it tough most of their working lives.
Soon, and 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 rather 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 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 Property Pick process showcases those projects and properties that we believe better fit Australia’s impending housing future.
To keep abreast of what we think and how things are changing, sign up for the Matusik Missive.