It’s a common dinner party or BBQ conversation opener: “how is the property market doing?” We hear it the whole time. The property market is lumped as one large collective animal that lumbers about in the one direction. It’s supposed to be one gigantic amorphous mass that predictably rises or falls and you jump on it or off it when it slows down, like a ride on a carousel.
For instance, a recent article by Michael Pascoe in the Sydney Morning Herald warned against anyone buying property for the next few years. His argument is that the property market is “flatlining” and that the ‘average investor buying housing today is going to lose money over the next few years’.
Pascoe backs up his argument with graphs and ABS figures showing a national decline in investment housing finance commitments. What Pascoe is focussing on, is an average national trend. And when you try and create any median figure that will always be taking an average from both highs and lows.
However what we’re looking at is a question of definition.
The truth is that there isn’t simply one property market at all. There are as many property markets as there are suburbs in Australia. This means we’re looking at around 8,800 different markets. Each will, at any given time, be either rising or falling.
While one select area can reach its peak and flatline for a period of time, another area can be taking off. So, while parts of Sydney have hit a peak at the moment, other areas are rising. This is again worth remembering when people talk about the “Sydney” or “Melbourne” market – both of which are made of very disparate suburbs. In Sydney we’ve seen enormous differences between growth in various suburbs – for example, suburbs in the south west such as Minto showing high growth whereas parts of the eastern suburbs slowing down.
Break down the national figures and you’ll see that there are many areas on the rise. For instance, Brisbane has experienced 14% growth in five years. While regional areas just outside the capitals like Newcastle, Wollongong, Gippsland and outer Melbourne are all experiencing rapid and consistent growth
Each individual property market is not always affected by what the rest of the market is doing. Often local factors such as infrastructure, economy, demographics or development can play a big part. For example, in Sydney, the planned new hospital in Frenchs Forest is already making it a growth suburb. The suburb of Chatswood continues to rise due to its popularity with Chinese buyers. Newcastle is proving popular due to increased infrastructure building.
All of these markets have their own idiosyncratic reasons for growth which are entirely unaffected by the national property trends. Equally, individual suburbs can have negative or flat growth due to a local factor such as apartment overdevelopment (ie. Inner city Melbourne) or economy – like parts of Perth which are hurt by the mining decline.
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It’s also worth pointing out that property investment works best if it’s played as a longer game. The very high, and at times, brutal cost of stamp duty in states like NSW and Victoria, mean that its not worth buying and selling multiple times as you’ll get taxed heavily. So investors looking for a quick sugar hit from a short term property buy may often be disappointed. Instead, look at the average trends of property over the last thirty years. RBA figures show that over the past 39 years Australian housing prices have increased on average by 7 ¼ percent per year.
There will always be peaks and troughs within the national market. There will always be unforseen events like the GFC, the early 1990s recession or the dot com crash of the late Nineties and many others. However, all figures show that property demand in Australia is always high over the long term, making property an eternally consistent investment.
So asking “how is the property market going?” is like saying “how’s the stock market going?”, ignoring the fact that the market is a mass of different industries, types and share options. That, for instance, a fall in BHP doesn’t mean that the stocks in banking will also fall. Or, for an analogy we can all relate to, it’s like saying: ‘how’s Australian sport going?” While, cricket may be weak, rugby is going great guns.
Therefore the answer to doing well with investment property, as always, lies in careful research and thoughtful studying of the many thousands of different property markets around Australia. It’s through sophisticated analysis and understanding that investors can succeed.