By Steve Waters
It’s hard to believe that the end of the year is here – and it’s sure been an interesting 12 months for our property markets.
So, as we wind down to the New Year, how are our markets faring right now and where are they headed in 2018?
At present, the most attractive factor that’s perpetuating our major capital city markets is cheap interest rates for homeowners specifically.
What that’s doing (whether it is Sydney, Melbourne or Brisbane and combined with the various first home owner grants) is the calculation is showing that it’s often cheaper to own than rent.
So while it’s cheaper to be a homeowner than a renter – and the government’s helping you – you’re going to have a market that perpetuates.
We’re seeing that in Sydney at the moment with house and land packages doing very well.
Also in Victorian regional areas – or what they classify as regional areas – are outperforming the general market.
Everybody has emanated from the CBD out, which is what Melbourne usually does in particular.
Cheap money and state government grants have made some of those markets rapidly increase in value such as Melton and Geelong.
Not only did they have the right infrastructure there from an investing point of view, but now they’re ramping up because of the combination of grants and super low interest rates.
We bought into the Melton and Geelong markets about two or three years ago – so, well, we told you so!
Hobart and Adelaide are finishing the year quite strongly because of affordability, but it’s important to remember that they’re both small markets that can rise and fall quickly because of influences such as job losses or increased supply.
There has been a lot of talk in the industry about Perth bottoming out and its worst days being over. I disagree.
In fact, I believe there’s more hurt to come, except for literally about five suburbs – which we’re trying to buy into but we’re not very successful because we’ve got our benchmark price and they’re just not coming to it.
So Perth is still a medium- to long-term outlook for me.
Far North Queensland is out, because it’s all about tourism and we don’t invest in one industry locations.
Central Queensland is still well and truly oversupplied with its continued hangover from the resources boom.
The Brisbane market has ended the year with reasonable results but with the CBD still oversupplied with new units.
I believe it will take somewhere between 12 to 24 months for that to be absorbed.
Some of best results in Brisbane are being recorded up to 40 minutes North, South and West of the city.
In fact, there continue to be good opportunities in those locations.
Where and how to invest next year
Next year will be about finance as much as market performance in my opinion.
If we look at the global economy, and the Australian economy, we’ve got low job growth and low wages growth.
We’ve still got inflation that’s extremely low and it just doesn’t seem to be moving, so there’s no real reason for the cash rates to go up anytime soon
Lenders will continue to tighten the screws, though, because of pressure from APRA.
So I believe finance is going to be the key to the market next year, specifically whether you’ll be able to get finance in the first place.
I actually think that banks should be tougher because some have been too loose with their lending practices.
Investors have already had to wear higher interest rates over the past 12 to 18 months but I don’t believe that’s the end of the cycle.
It will be interesting to see what happens when rates are higher or some over-stretched investors have to move from interest-only to principal and interest repayments and, perhaps, can no longer afford it.
APRA will continue to do the best it can and I believe it has probably staved off a bubble scenario.
Maybe a soft landing is what we’re going to have in store, which is OK with me, because as a professional investor we don’t want the ups and downs.
We don’t want the peaks and troughs. We want to have consistency and normality, otherwise it’s too hard to budget.
It’s an interesting moment in time because on one hand, APRA is trying to stop the Sydney and Melbourne market by making it harder for investors to borrow money.
On the other hand, however, lenders are loosening up on financing homeowners.
There has been a huge reduction in interest-only loans already.
Many cashed-up investors are also opting for principal and interest because the numbers make sense when there’s such a big rate discrepancy for each loan product.
Next year, Sydney will continue to slow no doubt and we’ll see an easing of somewhere between 3-7%, which is essentially that top layer of “giggle money” off the top.
I think some of the NSW regional areas will come into their own, as long as they’ve got strong employment characteristics and fundamentals
Melbourne is likely to follow Sydney’s suit to a degree but still record good results in in-demand locations as well as the regions.
The real numbers in Brisbane will start to come through in my opinion.
Brisbane has been on the radar for a while now, but the numbers are just starting to register. If job growth numbers improve, Brisbane “could” have exceptional growth numbers.
Once they do register, that will actually encourage more people to buy, because a lot of investors won’t do something until they’ve seen results, which by that stage is often too late – you’ve missed the boat.
I also believe that Brisbane will be a little bit like Melbourne, in that there will be areas that won’t do much (Brisbane CBD) and there will be areas that will outperform the market.
I think the people who will do really well next year will be the ones who are liquid today and who can perhaps buy a property without a loan, because they’ve got a line of credit.
The types of properties that are likely to do well are the ones that are a little bit cosmetically challenged, which perhaps the banks don’t want to lend on or they require a lower LVR.
Time will tell and if next year if anything like this year, there will be plenty more to write about in 2018!
By Steve Waters