There’s a lot of pessimism about property at the moment, with headlines tipping 2015’s hot markets to go off the boil and bad patches to get worse. It’s a big change of tone from the last few years, where east coast property could seemingly do no wrong.
So where is residential property headed in 2016, and how should you approach the market?
According to Chris Gray from buyer’s agent Your Empire, it’s still a reasonable market to be looking at, as long as you do the research on specific areas and know what you’re getting into.
He says that Perth and mining areas are in trouble, and will continue to do it tough this year. But at the other extreme, for example, two-bed million dollar properties in Bondi will always attract lots of buyers and be in short supply, so will still sell for 5 per cent to 10 per cent over bank valuation this year.
This sentiment is echoed by SQM Research’s Louis Christopher, who reckons that 2016 is shaping up to be another mixed bag.
“It remains a mixed housing market at the national level, with cities exposed to the commodities downturn recording large falls, particularly in the rental markets,” Christopher tells me.
“The rate cuts have helped stabilise these markets somewhat but we still think there will be more falls ahead for this year with a bottom not coming until we see a final bottom in commodity prices. On a brighter side, holiday locations are now doing well thanks to the lower Aussie dollar.”
One of those resurgent hot spots is the Gold Coast, which we highlighted about two years ago. According to SQM data, the market there was up by about 10 per cent in the last 12 months and still going strong.
As for the headline grabbing Sydney and Melbourne markets, we’re assured there’s not going to be any type of crash this year. In fact, Christopher tips Melbourne to be the city that will outperform this year, with forecasts of 8 per cent to 13 per cent price increases.
Back in October, SQM forecast house price declines for Perth and Darwin and single digit growth for the rest of our major capital cities in 2016 except Melbourne, which was into the double digits. Given Louis’ knack for forecasting, we wouldn’t bet against those predictions.
However, one word of warning for 2016 is to keep an eye on further regulatory changes, with recent modifications to bank lending standards having an impact on the market. As you might expect, the property market is super sensitive to any changes in the price and accessibility of finance.
Also remember property is driven by demand and supply… and there’s a lot of supply coming on. A record number of homes are being built and 65 per cent of them are apartments.
Given the mixed bag, how should you approach property in 2016?
There’s no doubt that in most regions it will be a buyer’s market. So sellers need to be realistic in the price they want because buyers will be putting on the pressure.
To get a handle on specific suburbs you’re looking to buy or sell in, Gray counsels that you need to cut through the headlines and be on the street physically seeing what’s happening to verify what the media is saying.
“How you fare very much depends on where and what you buy,” Gray says. His long-term strategy is to stick with medium price, blue chip inner city properties. Gray reckons that by doing so, wherever you are around the country, you’ll be okay.
The first part of that approach is especially important; playing the long game. Property should always be at least a 10-year plan, if not 30 years, according to Gray.
As for specific property research, always err of side of playing the role of an investor rather than home buyer in weighing up the numbers, to try and remove some of the emotion.
“There’s plenty of money to be made this year, so stick to the fundamentals and don’t try to get rich quick,” Gray reminds me. “Slow and stead wins the race.”
Couldn’t have said it better.
GLASS HALF FULL
More scary headlines last week about the health of the global economy with words like “ominous” and “derailed” being thrown about. At a time when sharemarkets are spooked and volatile, it all adds to the general hysteria.
But when you look at the detail, it’s not really that scary at all.
Yes, the International Monetary Fund did downgrade 2016 global economic growth from 3.6 per cent to 3.4 per cent. It’s all a result of it downgrading US economic growth for this year from 2.8 to 2.6 per cent and the Eurozone from 1.8 to 1.7 per cent.
What hasn’t been made clear is that even after the downward revision to 3.4 per cent, it will still be higher than 2015 global economic growth of around 3 per cent.
So the global economy will grow at a faster pace this year than in 2015… it will be BETTER than last year. That message hasn’t really got through. Global economic growth will be close to its long term average… it won’t be great, it won’t be bad, but it will be solid.
Sure there are challenges for the global economy. There always is, no matter what year it is.
One of the biggest challenges will be assessing China.
The media picked up on an IMF comment that China’s economic growth will be the slowest in 25 years. But so it should be.
25 years ago China was a developing nation with a tiny economy so a relatively small improvement would translate into impressive double digit percentage growth figures.
Today China is a huge developed first world economy… by some measures it is the biggest economy in the world. So improvements as a percentage of its size will obviously be a lot smaller.
Its expected 6.5 per cent economic growth, given its size, is still pretty impressive compared to the rest of the developing world.
We all just need to get our head around (and our expectations) that China today is a different beast to 10 years ago.