Australian Property Market 2023
Will the housing market crash in 2023 Australia?
At properT network, we have been helping our clients grow and take control of their own financial destinies, through astute investment helping them secure Investment Grade property for the past 16 years now.
Their success comes off the back of our practiced habit of doing our market research and following recognised and successful analysts in our exciting ever evolving industry.
What I am sharing with you below is a summary of recent articles we have read and collated, information we know is of interest to our investors and potential investors. This summary will aid your own due diligence, in helping you determine when is the right time to invest. Now when you are ready to get the ball rolling, reach out to us and share your investment objectives, requirements and purpose for your investment and we will help you source a ‘best fit’ property to match.
Property Investors are experiencing a severe case of “it is not how you time the market that counts, it is how much time you spend in the Market, that is important.” And we will add “selecting the right property, suited to your investment purpose, is as vital!
Current Situation
Headlines of late, designed to create fear and sell more advertising space, one would (if you believe what you read) take a dim view of the exceptional amount of doom and gloom in the market place :
- Large building companies collapsing through insolvencies
- Increasing interest rates at a historical pace
- Inflation
- The economy
- Talk of recession
- Vacancy Rates at historical lows, demand for rentals exceed supply
Market
Set aside and remove emotion, look why the glass is actually half full (not half empty as per the sensationalised over generalised media beat up), we will soon discover that opportunity to grow our wealth, through astute property investment planning and strategies, very much exist and are available to us right now.
History
I spent a part of my adult working life, living and working in South Africa, whose economy was always in a recession. Yet people still made good money! People invested, because that is what you do. We were driven by our goals and purpose, no matter what was happening around us, cycles and events that were out of our control. And we made decisions!
We knew the cost of “waiting to see what happens” which always includes emotion, and we all know that whenever you make a financial decision using emotion, it costs us money and lost opportunity!
What this means to you is there is always opportunity, even in times of turbulence
Vacancy Rates and Rental Yields
Vacancy rates in Australia remain ridiculously low, at all time historical lows in fact. Some areas have a Zero Vacancy rate. This is inflationary, driving up rental yields, with supply not keeping up with demand.
Insufficient land being released, developers holding off on new developments due to construction woes, the cost of loans for developers and owners have increased, meaning ability to borrow sufficiently is at a new low.
The positive spin off is an investors Income is increasing, because low supply of rental properties and very high demand, means that tenants are prepared to, and do pay higher rents to secure a rental property. Would you say no to a higher rental income and some tax savings?
The government at all levels have acknowledged and declared a housing supply crisis for owners and renters. Australia has reached a critical tipping point with severe undersupply and inability to sufficiently increase this needed supply
Supply of dwellings to Own or Rent are massively undersupplied across capital cities and regionals. Sure some areas have sufficient supply, whilst locations where people want to move to and live, continue to experience tremendous difficulties sourcing a home to own or rent.
The opportunity here for you is a strong fundamental is at play to underpin the stability of your investment and even further growth of your investment.
Apartments – are in low supply
Banks are not lending to developers as they should be, supply of building materials yet to catch up with demand. Difficulty in getting trades people to build and other factors at play for developers.
Insolvencies by larger developers to build these apartments has resulted in a further slow down in supply of construction, further exacerbated by demand.
Pressure on delivery remains at all time high’s with no sign of abating going forwards.
A stall in supply will be inflationary and cost the buyer more once the project is re-released.
It is fact that there are less dwelling commencements in the pipeline.
Houses – are in low supply
As per above points, yet further exacerbated by local council’s lack of foresight and planning, to approve and release new land for development. Tragically they are way behind on this in many areas Australia wide.
This lack of planning will hold prices firm and once interest rates stabilise or reduce, developers will charge more for the same. In other words, waiting could cost you more for the land and also for construction.
As per above, there are less dwelling commencements in the pipeline.
Investment Grade property remains in short supply as do quality A-grade homes
Borders Reopening
The Australian Government are stimulating immigration into Australia for skilled workers and also students. Australia in general offers migrants a unique lifestyle and also economic benefit and job opportunity, attracting overseas migrants.
Supply to own or rent a dwelling cannot keep up with current local demand right now. how will it supply new arrivals?
The Australian population is planned to increase by another million residents over the next 2 to 3 years. Can supply meet this growth?
Inflation
Inflation is sitting at a high, with most of our working population never experiencing such inflation before. Some are being hard hit, whilst others will continue with similiar lifestyle.
Inflation is the prime reason why we need to invest and grow our own capital base to ensure we have sufficient capital at retirement to live the life we want and deserve for ourselves. I mentioned earlier that I grew up and worked in South Africa, not only were we always in a recession, we also experienced ongoing inflation.
What this meant to us is that we had to ensure our investments worked very hard and smartly for us, so taht the value of our Dollar at retirement was not eroded by inflation. Meaning we needed more capital at retirement to ensure we had the same or a stronger purchasing power when retirement approached.
Australia (or any other country) is no different. Inflation is real and we all need to invest and save more to protect and preserve our retirement lifestyles we want.
Why do we allow the media to scare us into doing nothing, at a time we should be taking more action?
Can inflation and higher interest rates cause property to collapse?
Sure, there is a chance of that happening. But on the other side of the coin, there is the same chance that our economy will remain resilient. Australia is an emerging economy and continues to enjoy sound population growth, high employment rates and more fundamentals to ensure a minimised effect.
This could take the edge off our inflation and underpin our economy to minimise financial and recessionary damage. There is already talk of interest rates tapering off and even coming down before the end of 2023.
What if our property market does collapse?
In the unfortunate situation of a market collapse, what tends to occur is that the lower income earners are the ones mostly affected. They tend to live in geographic areas most investors do not invest in. Followed by that demographic, depending on the level of collapse, the middle income earners could be affected.
When house prices drop, banks value properties at a lower value, and those wanting to settle on a new purchase will be impacted by lower valuations and may not be able to settle and or lose their deposits.
Banks tend not to foreclose on properties with people struggling to pay their loans, as the do not want to be land bankers. Banks would rather find a solution or encourage the person to sell the home. When they sell, they become a renter and thus an investors tenant.
Vacancy rates are already at historical lows, and the result will thus be an increase in rental yields as demand for more rentals increase and supply remains unable to meet current, never mind future demand. Realistically, one person’s problem is anothers opportunity.
How well placed are you to position yourself for the opportunity?
Interest Rates
The market is realigning to the increase in interest rates and the swiftness of these increases. This too has resulted in the adjustment of ones borrowing capacity, affecting a buyers purchasing power, affordability and amount of deposit required.
It has not materially affected the underlying demand for housing in sought after locations, as fundamentals remain strong in those locations.
Analysts predict that as inflation comes under control, interest rates should reach their peak during the first half of 2023. This will result in the current retraction evolving into a growth market, on the back of high demand and low supply.
Standard variable rates 10 years ago in 2013 were at 6.6% on average, and today on average just below 5%. Which is still 1.6% below where it was 10 years ago.
Some analysts are already predicting a slow down of interest rate increases and other being more confident of a reduction prior to the end of 2023. Our general feeling is that interest rates will stabilise and have the potential of coming down, once inflation is under control.
As an investor, you need to make a responsible decision and ensure your cash flow, and the cash flow of your investment is financially manageable, prior to investing. If you are in a position to secure a Loan in order to leverage into your property investment, and the numbers which drive and underpin your investment make financial sense, you would be hard pressed to not want to invest.
it is time in the market, and the power of compounding returns, (capital growth and rental income), that accelerate your financial planning goals, when one secures an Investment Grade property.
Recession
The definition of a recession is when an economy recedes for two quarters in a row.
It does not talk about how large or small the negative growth needs to be to classify it as a recession. There are headlines of a Global Recession, the impacts in Australia are largely unknown if this occurs. However Australia could be more ‘protected’ to an increasing population growth and high employment rates, potentially resulting in a more minor recession.
does this mean one should not invest if our economy is headed for a recession?
Or does this mean we should implement increased planning and invest?
We all know we need to ensure we come out the other side of the possible recession in a financially healthier position. So we we plan to fail by avoiding taking action, or do we act and plan for increased success?
Demand for Australian Property
Life in Australia goes on, people loose partners and need to downsize, kids move out of home and retirement is nearing also necessitating a downsizing, people get divorced requiring new accommodations, people get married now need a dwelling for this new family unit, especially as kids come along, whilst others change environment and need to move house for lifestyle, work or other. This keeps the Australian property market ticking along soundly. When you then add strong employment, a population growth factor, economic growth potential, investment into infrastructure, strong housing finance, healthy retail spending, very strong investment stimulating construction – the fundamental required to underpin a healthy property market are all in place.
- Offshore demand for Australian Property
- There is a renewed interest by offshore investors in the Australian property market.They have identified the sound fundamental which will underpin and drive their investment, and the result is an increasing level of inquiry from offshore investors
- First Home Buyers
- This market has definitely slowed down due to increasing interest rates Larger deposits are required, which buyers do not have Banks are also underwriting loans at a higher risk rate, meaning buyers can only able to borrow less money than they were even 12 months ago based on their same level of income they earn.Government incentives are still available if the home qualifies Further fundamentals which continue to ensure current prices hold firm
- Downsizers
- Downsizers, wanting lifestyle accommodations they deserve, are strong competition for the buyers’ market, and investors in that price range. This too is resulting in increased demand for lifestyle apartment buildings and also lifestyle village dwellings
- Investors
- Investors confidence did wain on the back of interest rate hikes, and location dependent certain market fundamentals at play. The initial over reaction and concern continues to relax with bank lending for investors once again on the rise. As interest rate increases slow down and stabilise, this interest will once again peak.
Property Values
Property values in the price range where the majority of Australian buyers can afford to buy to live in or rent out continue to be largely unimpaired by the slow down or price reduction in the property market. In demand locations, it makes sense that there are substantially more buyers in this sector of the market, creating increased competition and thus holding prices firm (in general); when compared to more expensive markets where there are fewer buyers and lower competition, these markets fluctuate at a higher percentage.
Naturally less buyers and lower competition, result in higher price fluctuations when markets change, compared to those markets where the vast majority of buyers are looking in.
Media are notorious for over generalisations and not divulging market statistics such as this. There are hundreds of property markets, it is irresponsible of them to generalise across many sectors for the purpose of fear mongering.
Another factor ensuring property prices remain firm or continue to increase is low supply of land. When this occurs, it is natural for a developer to maximise their profit margins accordingly in times of low supply and high demand.
This is further compounded by continued rise in construction costs for materials and labour. The result is a new home costing more to build today than it did previously, and will cost you more tomorrow than it did today. So why wait.
Market Cycles
Australia’s property market has and will always move in cycles, this is natural.
We experienced a rather unusual run on property prices prior to and during Covid. This run was an unnatural cycle and it is expected that such a market realigns itself to a more natural cycle, where prices will settle, only to experience it’s next upward cycle primarily due to high demand and low supply.
Over the past 30 years, our capital city markets demonstrate that the steepness of an upswing tends to be longer and greater than a downturn.
What this means is that analysts predict that it is likely that property values will remain higher than they are pre-pandemic. This demonstrates the importance of viewing property as a long-term investment, where timing the market is not a successful strategy, compared to time in the market.
By the time the media are reporting growth, you are too late, that growth cycle is already in play.
“Want to be investors” continue to try time the market based on where they believe the current property cycles is at.
Investors take a long view.
There are many intelligent articles, blogs and books demonstrating that trying to time the market is not as successful as “the time you spend in the market“, when owning an Investment Grade property.
In Summary
Yes, market conditions did soften over the past 9 months, driven by increases in interest rates and economic uncertainty.
In an unnatural property cycle where prices ran too hot too quick, a correction was expected and is a natural occurrence. The decline has already slowed nationwide.
We are again seeing visible signs of green shoots on the back of our borders opening, high employment rates, and an increase in inquiry from buyers. Housing values, as a generalisation could have hit their floor level, or do so, in the very near future during 2023. Market fundamentals remain strong.
Australia is made up of hundreds of property markets, one should not generalise, which is our pet peev. However it is not possible to segment the many markets in an article meant to demonstrate that the overall thermometer across Australian property market is looking encouraging. Investing requires intensive due diligence and understanding, prior to committing. We strongly urge that you do this or team up with an industry professional whose sole focus is on property investment.
Rate cuts expected for later this year will put a floor under prices and thanks to the revival of mass immigration, 2024 looms as a return to rising house prices again, creating opportunity now and going forwards.
Analysts and market expertise expect the market to rebound during or after the 2nd quarter as monetary policy and inflationary conditions stabilise, which they predict will aid the return of consumer confidence and investors coming back into the market, further exacerbating demand on a market that is struggling with supply and historically low vacancy rates.
There is a housing supply crisis at play, this is very real and will result in inflationary pricing and rental yields on the back of supply which cannot keep up with demand, and demand to own or rent is still growing.
There will be a mortgage serviceability risk experienced, but bank statistics demonstrate that a significant amount of mortgage holders are ahead of their payments, and this will result in stability to absorb increased interest rate hikes. Serviceability will be an issue for some and there is concern that those coming off record low fixed mortgage rates during the second half of 2023 could be placed under financial pressures when they change to variable rate loans.
Our borders are opening again, unemployment remains at historical lows, rental yields at historical highs, supply of dwellings to own or rent will continue to be a major challenge and remain at historical lows, all these fundamentals present as a significant opportunity for investors.
What we have shared with you in this blog is information collated from the market place and is general in nature and not financial advice. Undertake your due diligence to determine if you view the current and more importantly the future property market as an investment opportunity for yourself.
A small percentage of property presents itself as Investment Grade, be mindful of this when looking around. If you are unsure or wish to piggy back on 16 years of experience in this space, then reach out to us. Our purpose is to ensure we save our clients time, help them come to an informed investment decision, so that they can make more money. This is what gets us up in the morning, knowing we help our clients reach some of their goals.
Leaving us with the proverbial question : “Will the property market crash in 2023, or is now the best time to buy a property?”
This all depends on your relationship to and with money. For those of you who come with fear, looking for reasons not to do something, there are plenty reasons abound to stop you, and stop you once again!
For those of you who have a healthy relationship to and with money, the best time to secure a quality Investment Grade property was yesterday, and the second best time is today!”
Meaning, it all depends on if you are a glass half empty type of person, or the glass is always full person, who looks for opportunity when others are fearful.
