Margaret Lomas on the 2018 outlook for Aussie property
The author, TV host and property expert tells us where she sees property prices heading this year.
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Asking the question "What’s the outlook for property prices in 2018?" is pretty much the same as asking "How much is a bag of wool?" The answer to that question would be "It depends on where you are buying it from – it’s vastly different in every country!"
And so it is with property prices. Of course, we know they are different in every country, but it is also critical to note that not only are they vastly different in every part of Australia, the cycles in which property prices move also vary greatly from area to area.
Before discussing the property price outlook, we need to closely examine where in the cycle each different area is and what the major driving factors are behind each area’s capacity to grow. Sydney is, of course, at its peak and the general outlook is for subdued prices for some time to come.
Sydney has an annoying habit of going gangbusters for three to four years, creating a FOMO (fear of missing out) that further fuels the fire, and then sitting virtually stagnant for seven years or so after that. It’s useful to note that between 2003 and 2010, when every other capital city almost doubled in price, Sydney achieved a dismal 17% growth overall.
And so, it was with some relief that many Sydney property owners finally welcomed the long overdue boom. Anyone who bought property in 2003 and sold it in 2017 didn’t get an exceptional overall return at all – their property had likely only just doubled during the 14 years.
Their neighbour though, who might have purchased in 2012, was likely to have seen somewhere around an 85% growth in just five years! Anyone who tries to tell you that it’s not market timing but time in market which counts is fooling themselves. Market timing is as critical with property as it is with any investment.
The Melbourne market tends to march to a different beat. Courtesy of a wonderful multicultural society, Melburnians are very emotionally invested in property, and this leads to a vibrant market. It has its peaks and troughs, but it’s usually experiencing some growth most of the time (with the exception of the oversupplied inner-city apartment market), and investing in Melbourne's suburbs has tended to be a reasonably profitable exercise.
Adelaide and Brisbane
In Adelaide and Brisbane, there’s a different picture again. Many commentators remark on the lack of growth in these markets, but that is simply not true when considered over periods longer than 8-10 years. While neither of these cities boom suddenly, they don’t bust either. Instead, they grow in a steady curve which just outpaces inflation.
For the buy-and-hold property investor who is also after a great rental return to help cover the holding costs, these are great markets which grow a little bit every year to create a suitable and sound overall return. With growth averaging from 3-5% and rental returns from 4-5.5%, a combined yearly result of 7-10% has to be seen as a great outcome.
Perth, Darwin and Hobart
Then we come to the more sporadic markets: Perth, Darwin and Hobart. These markets typically respond to two drivers: industry and investor sentiment. When commodities are strong and booming, so is the property in Perth and Darwin. And when investors seek affordable property with strong rents, Hobart ticks the boxes. In between times, these cities can stagnate for years on end, and their rental returns can suffer.
Investors with poor market timing can make huge mistakes, waiting for growth which may never come within their own investing time frames. Often, they have bought property right in the heat of a short-term frenzy, and by the time they’ve settled, things have already started to cool, and then stay cold, for years on end.
And let’s not forget the many markets in between. From mining towns where property can gain and then lose $800,000 inside a year to smaller country towns with low populations that start from a low base and grow slowly (albeit remaining at a low base), there are literally hundreds of markets which are all doing different things at different times! And even within our cities, there will always be suburbs which grow or fall counter to the city where they exist.
So, back to that question, what’s the outlook for 2018? In my opinion, most of Sydney will plateau, but I can’t see much in the way of falls with the exception of some of those oversupplied apartment markets and, of course, properties that people paid too much for when they got caught in the frenzy. Melbourne has some amazing suburban opportunities right now, most particularly out west toward Sunbury and southeast all the way down to Frankston.
Adelaide and Brisbane will likely do what they always do: grow a little and give some nice 5% rental returns, with the northern suburbs of Brisbane looking to outpace the rest of the city. Darwin remains a bit of a no-go zone. The recent heat of the market blew it a little out of the ballpark and we have to see some more settling yet. Hobart’s recent enthusiasm isn’t really supported by population growth, and as relative yields fall, investor sentiment is likely to dissipate and take buyers out of the market. It should return to its usual below par yearly growth for the coming five years or so.
And for speculators, all eyes are on Perth. Days on market are beginning to shrink in some areas and rents are finally turning the corner. Those who are patient could find some good buys that will grow in the coming few years. But stay out of the city, go to those affordable suburbs where the rents are also higher, and be prepared to wait for the market bottom to pass.
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