We are experiencing an unprecedented property boom across Australia. In the past few months, auction clearance rates are high; the media – usually quick to be negative – is unanimously positive. Analysts are predicting a bullish market that could last between 3-7 years and house prices have been growing over recent months across all major cities.
Median Value Capital Growth | Source: Corelogic
|Price growth||Consecutive months of price growth|
This is quite a rare situation in the history of our property markets. Typically, Sydney and Melbourne – our two largest cities – tend to work on the same property cycle and rise simultaneously. Once they reach the peak of their cycle, Brisbane typically follows, with Perth and Adelaide after that.
But given the strong fundamentals of our major city markets, the Australian government’s excellent response to controlling the pandemic, what we are seeing is a ‘perfect storm’.
What factors are driving national price growth?
- Covid-19 response
Australia ranks among the highest in terms of our Covid-19 response – both in terms of controlling the spread, and also supporting the economy through initiatives such as Jobkeeper and JobSeeker.
- Housing shortage
Housing is undersupplied in our major city markets; with HomeBuilder subsidies and historically low interest rates, demand is high. At the same time, after a number of years with tightened lending, Royal Commission and Covid-19 impacts, supply of new housing has been much lower to the years prior.
- Return of expats
Whilst we have temporarily lost our international students and migrants, we also have a large number of expats returning to help fill this gap. When you remember that the process for approving and constructing new housing can take as long as 3-5 years, once the pandemic stabilises and students and immigration returns, it is expected that the gap between supply and demand will be even higher.
In addition, the “fear of missing out” for owner-occupiers, and the return of investors to the market, have both contributed to an unprecedented rise in market sentiment, driving the simultaneous rise of the five major cities in Australia.
How to capitalise on a bullish market
First home buyers
If you haven’t bought your own home yet, I think it’s time to take action.
If you buy your own property now, you can enjoy the capital growth that will come with this next property boom. This accumulation of equity can also set a great foundation to buy an investment property in future as well.
For investors, the situation is a little more complex. I have been investing in property for more than 20 years, and have experienced multiple cycles in various cities in Australia. I’ve also seen how investors typically behave in each cycle and how some of these behaviours can negatively impact their longer-term goals. In my experience, investors need to do the following:
- Invest strategically and with purpose – buying a property isn’t the same as investing, nor is it equivalent to building long-term wealth.
Many investors ignore (or are unaware of) early market upswings. They only invest when people around them start to do so – buying for the sake of buying and blindly entering the market. These investors tend to buy when the market is close to peak, and then sell too early, either at a loss or with little capital growth.
Even in Sydney, if you had bought in 2014/15 during the price growth of 2013-2018; yes, you would have achieved some growth already. But those who had the foresight to buy early – even if it was during the long period of flat price growth between 2003 and 2013, or even earlier – would be those who profited more.
- Have a sense of urgency and don’t waste time in endless research
I’ve also encountered another type of ‘quasi-investor’ – these are people who have read endless market analysis, been to innumerable investment courses or seminars – and talk about all their knowledge and research, but never take the next step to invest. For this group, they are inevitably held back by concern about whether it is ‘the right time’ and swayed by negative opinions or media headlines. As a result, they miss out on potential gains in cycle after cycle.
When I first started investing in 1998, I had no idea about ‘market timing’ because I was inexperienced and didn’t know enough to understand the whole picture. What I did have was a professional team who had done it all before, and who I trusted to guide me. As a result, I went ahead and bought seven properties in a 12-month period, producing enough assets and income to build wealth for life. Because most importantly, I also learned the importance of holding them long-term to grow in value.
Acting on good information is key – and it’s what has helped me personally and many of our customers. Last week, our Sydney branch held our first in-person seminar since the pandemic. One of the audience members came to thank me. He said that in 2013, he learned of the early signs of the market upswing through one of our seminars. He acted quickly at the time, and accordingly, achieved great success in the last cycle.
No one knows the day a boom will come, so the only way to be sure is to make sure you’ve got some property in your name ahead of that time!
History keeps on repeating…
I have been in this industry and investing for over 20 years. I have heard people saying (time and again as cycles come and go): “property prices can’t keep rising” or “the market is about to cool”. What they don’t understand is that firstly, property prices will continue to rise as the inevitable result of inflation. What they also don’t understand is the underlying market fundamentals in Australia; as big as this country is geographically, over 80% of our population live in our five major capital cities. So, in that sense, land is scarce, and our population continues to grow.
In addition, our government effectively encourages property investors, through unique tax benefits and incentives. This makes it a genuinely feasible path for many to build long-term wealth, and not have to worry about if the pension will still be there or if your super will be enough.
If you look at Australian house prices in 1991, they will seem cheap beyond belief. Today they seem expensive beyond belief. But what will they be 20 years from now? History has had a pattern of repeating itself.
With a property boom underway, I know there will be many who take the opportunity to start building wealth. There will be others who do not – and that is human nature. But it’s ultimately in your hands; if you’re in a position to buy your first home or start investing, now is a great time to start learning more about the market; consider what type of investment is suited to your budget or situation and to talk with a professional who could guide you. At Ironfish, we are very passionate about the benefits of investing in quality property assets over the long term, and we’d love to help you.