Quarterly Market Update - Where is the property market going?
The passing of another quarter marks a good point for any Australian property investor to take stock of what's happening with the property market.
The passing of another quarter marks a good point for any Australian property investor to take stock of what's happening with the property market. Surveying the situation at the end of this most recent quarter, we can come to a number of conclusions that will help guide us in the months and years ahead.
Is it the right time for investing in property now?
The fact is, there's always an opportunity to buy real estate. There's no such thing as good or bad markets - only those where it's easier to find the right property, and those where you have to look harder.
At the moment, there are a number of key factors that are giving confidence to property investors. The first is the fact that interest rates are at their lowest in Australian banking history, thanks to the official cash rate being held at a record low throughout the entirety of 2014. The holding cost is the primary expense for property investors, as most buy property through borrowed funds, and lower interest rates can significantly reduce this.
For instance, two years ago, the three-year fixed rate was around the 7.2 per cent mark. Today, you can get five-year rates for below 5 per cent. On a property worth half a million dollars, that 2.2 per cent differential can mean a saving of around $10,400 a year, or $200 a week. It's no wonder some people can afford three to four properties for the price of one.
Australia's relatively stable economy is also helping investors. There are no major global financial crisis (GFC) issues currently plaguing us, and while China's growth is flat, the US is on the upswing. In addition to this, immigration is solid and the property market remains strong as a whole. All of this is making the market appealing to investors.
Where should I buy an investment property?
This is the million dollar question - literally, in some cases. As far as the capitals go, Brisbane is the one to watch, particularly its middle ring suburbs.
Local and inter-state sentiment toward Brisbane took a hit both after the GFC and the flooding it experienced from 2009-11. Since then, Brisbane has remained low, with median house prices in Sydney and Melbourne significantly higher currently than in the Queensland capital.
But it's Brisbane's time to catch up now. There were a number of indicators in the last half of 2014 - in terms of economic growth, population increase and median home values - that there are opportunities to be found in Brisbane, particularly while prices are currently so low. It pays to remember that, two years ago, Sydney was the worst performing market nationally. Now people are kicking themselves for not having gone against the herd back then.
What direction are interest rates going?
With record low interest rates helping to underpin the current unprecedented amount of investor activity in the market, many are wondering: What will become of them in the near future?
At the moment, unemployment is a little bit higher, the budget is in deficit and the mining industry is off the boil. Petrol prices - which tend to be a significant element in inflation - have dropped, and there is therefore little fear of inflation at the present. So some of the factors that would typically lead the Reserve Bank of Australia to want to put the breaks on the economy by raising the cash rate aren't there.
It's safe to assume that interest rates will likely stay held for a good chunk of 2015. However, if there is any movement, many experts are actually expecting a drop of a further 25 basis points at some point in the year.
All of this data points to continued good prospects for investors in Australia in the near term and beyond. Just be sure to be prudent and not get caught in the hype - rather, do your research, take a forensic approach and stick to your property investment plan.