Property experts are back in Sydney, Melbourne; should investors follow?

“Small things have changed. You go down one street and you might not have noticed a group of 10 houses that are there now there, which changes the streetscape and the micro-demographic in that particular street. We also need to look at what it really means in terms of the infrastructure.”

However, he advised investors to avoid going all-in just yet. While certainly showing signs of improvement, the Sydney property market could take a while before it starts soaring back up again.

According to Mr Kumar: “A lot of the property pundits are getting on the bandwagon and saying, ‘It's going to go up, it's going to go up.’ You're only going to take a leaf out of the Perth market—since 2011, most of the pundits are saying that it was going to go up, but the fundamentals weren't there.”

“I believe the fundamentals are here in Sydney but I don't think we've quite turned the corner, meaning, it hasn't quite flattened out yet in my opinion.”

Risk management

While waiting for the market to reach the bottom, investors can already start preparing for their comeback by watching the movements of housing prices, Mr Kumar said.

Experts usually follow the sales process of particular properties—from negotiation to settlement—in order to find out consumer sentiment through the volume of inquiries, vendor discounting levels and other emerging trends that point to the direction where the market is going.

“It gives you a good gauge of the current state of the market when you're not just looking at a property that was inflated to begin with and discounted to where the market was. You need to actually see true discounting happening, real-time, and not rely on datasets that are three months old.”

Apart from following the movements of dwelling values, Right Property Group’s Steve Waters also advised investors to pay attention to the current and future infrastructure in and around the capital cities.

Whether looking into going back in Sydney or Melbourne, investors are encouraged to study building activities across council areas. Look into major projects set for the next 12 months in order to get a feel of how particular locations will change in terms of socio-economic factors such as population, jobs and industries.

How much housing supply will be there in the next year? Will it be complemented by strong demand or will the area suffer oversupply? Will the infrastructure accommodate population growth accordingly?

Mr Waters said: “It's all good to say, ‘The market is flattening out,’ but what everybody needs to do is look into particular council areas and see how much construction is still underway because, whilst the market may have flattened momentarily, there might be a heap of house and land or apartments or townhouses that are coming on to the market.”

“Look 12 months ahead in terms of construction and see what's going to be released, as well as the funnels of population growth that are being fed into the area. Council areas change to accommodate the numbers in terms of population growth in areas.

“There's definitely a lot into it than just, ‘Well, let's just put our finger up in the air and see which way the wind's blowing.’”

Like following the movements of dwelling values, tracking the movements of the local economy will involve active research as well.

Mr Kumar strongly encouraged investors to drive around the area to see the council activities and community engagement for themselves. They could also take the time to engage with property professionals, where appropriate, to find out everything that’s in store for the area.

“Talk to the agents, go through the shopping centres, look at the sites that are being developed and see if they are hives of activity or are actually being slowed down. You can't get that off a desktop. You have to actually be physically on the ground.”

Preparing for a new cycle

Right now, while it’s still not advisable to buy more properties in Sydney and Melbourne, experts encourage investors to start doing due diligence in order to prepare themselves for the time when both property markets have fully recovered.

First and foremost, they should learn the cut out the noise from doom-and-gloom headlines, according to Mr Kumar. Instead, learn about the truth by looking into historical and economic data as well as real-time market movements.

“Stop following these negative media stories. Look at the data in its entirety and see what truth it reveals rather than focusing on a small snippet of data being taken and bandied around as the truth.”

Moreover, investors are encouraged to look into their borrowing capacity and adjust their portfolio accordingly as early as now because the changes brought forth by the tightening of the lending environment are expected to affect property investment significantly moving forward.

Pay attention to the household budget as well and make smart decisions about surplus income to mitigate risks throughout any market cycle.

According to Mr Waters: “No matter how good or bad the market is doing, if you haven't got the surplus income to be able to invest, you just shouldn't be investing at all. If you can't sleep at night because of your finances, then don't invest.”

Finally, don’t hesitate to seek the guidance of property professionals and seasoned investors, where appropriate, to ultimately maximise your wealth-creation potential in a changing market.

Tune in to the October episode of Investing Insights with Right Property Group to find out more about how to address opportunities in the current market.