Finding growth areas in softening markets – experts weigh in

It’s critical to note that property market doomsday scenarios are often sensationalised, and driven by happenings in two metropolises alone – Melbourne and Sydney.

Where’s the good news?

Simon Presley, head of property market research at Propertyology, said: “Official data from 2018 shows there were actually 35 towns and cities throughout Australia that had price growth of 5 per cent or more.”

This is in addition to realestate.com.au’s most recent Property Outlook report stating the national decline in home values is significantly less severe than projected by other observers.

Scott O’Neill, director of Rethink Investing, said: “I bought my first property in 2010 when every fourth of fifth paper said there was going to be a 40-50 per cent crash in the Sydney market. The result was actually a 6 or 7 per cent fall, followed by a couple years of flat growth, then a boom.”

Mr O’Neill believes we are going to have it a little worse this time around – with perhaps another 10 percent fall in Sydney and Melbourne before it’s done and investors begin returning to the markets.

“With 70-80 per cent owner-occupiers, there’s no way the market is going to crash 40 per cent,” he said.

Mr Presley noted that large parts of Australia’s housing supply is currently tight, which is an influential ingredient for price growth. One of the main reasons for the downturn in Sydney and Melbourne has been loose supply of housing in the past 12 months.

“We expect broadly for housing to remain tight because it’s getting increasingly hard for developers to get finance, so whilst that’s a problem for developers, it’s an opportunity for property investors,” Mr Presley said.

Vacancy rates in large parts of Australia are also low, according to Mr Presley, who anticipates over the next two years that rent will rise in many locations as a result.

“There hasn’t been much rental growth since the GFC, so again, that will be a positive for property investors on their profit and loss statements,” he said.

What’s to come?

Cameron Kusher, head of research at CoreLogic, said: “We still think the market is going to continue to fall at a national level, but certainly there are areas where we are seeing stronger housing market conditions.”

“Clearly it’s affordable areas in regional markets that are doing better, and I think that’s going to continue… as long as those markets are reasonably close to a capital city, have that affordability advantage and some job prospects.”

Media sensationalism has a strong impact on the public in itself, so it is understandable that Australians might continue fretting about investing in property in the near future.

But Mr Presley’s outlook on future growth in Australia’s housing market is even more optimistic.

“I have a very, very strong view that the next 3-5 years will be the best that Australian property markets have seen since the GFC… and I’m very conscious that contradicts what the broad consensus has been over the last 12 months”,” he said.

A number of factors will play a role, according to Mr Presley, who elaborated: “A lot of what happens this year is going to be dictated by what happens with the final reports from the banking royal commission, as well as any changes around macro-prudential policies.”

“But it’s hard to see without an easing back of some of the credit constraints that housing market conditions are going to change greatly this year,” he said.

It seems the prospects for greater gains will be seen further down the road, and growth patterns state-by-state will be non-linear, as per usual.

Keep a watch on…

Sydney and Melbourne

“As crazy as the price falls are at the moment, I’m still getting called up by people wanting to invest in Sydney but can’t because the banks have said no,” said Mr O’Neill.

You really only need to worry when the demand is not there, so it’s an unofficial handbrake and once that’s released I think you’re going to see the inevitable recovery.”

Although Mr O’Neill would not advise buying into property in Sydney and Melbourne at present – when you could probably buy the same property for 10 per cent less in 18 months – if you take a long-term view and keep an eye out for bargains, there’s always an opportunity.

Queensland

“My favourite is still your south-east Queensland markets. One of the best markets in Australia will be the sunshine coast,” said Mr O’Neill.

That’s off the back of things like an already completed $3 billion hospital, great universities, upgrades to the airport, growing incomes from construction jobs on public infrastructure to housing, a new Wet’n’Wild and increased populations across all demographics, he said.

“Also down into Brisbane’s middle-ring suburbs, I like this area best for the next five years because it’s just coming out of a terrible ten years,” said Mr O’Neill.

“Incomes have grown since then, rents have grown and that housing affordability will just give it resilience no matter how doom and gloom the media reports seem.”

Tasmania

According to CoreLogic’s data, values in Launceston and north-east regions in Tasmania were up 11.4 per cent at the end of 2018 up from 5.1 per cent the previous year. The south-east of Tasmania was up 8.6 per cent while west and northwest regions grew 7.8 per cent in 2018, up from 7 per cent and 2.7 per cent in 2017 respectively.

“I actually believe Launceston will be one of the top performing markets over the next 12 months following the ripple effect of Hobart. It’s quite a bit cheaper, yields are good, there’s increased tourism, upgrades to the university and a lot of good news coming out of there,” he said.

“But it’s probably only got a couple more years before it starts cooling off.”

Mr O’Neill also believes Hobart will start cooling off fairly quickly, as it’s becoming unaffordable for locals to invest in property around the city.