As we look back on the period between 2014 – 2017, we witnessed property investors flock to the market. We watched property prices in Sydney & Melbourne reach double-digit annual growth. The headlines were all about how “Investors were outbidding first home buyers” and shattering the great Australian dream for First Home buyers of owning property. “How unaffordable property prices were” and so on! Since property prices peaked in Melbourne & Sydney in September 2017, it’s fair to say we have witnessed an extremely volatile market.
The peak of the market in September 2017, was followed by a prolonged 18 month period of decline. Mainstream media quickly turned the narrative, and the headlines read “Property market to continue free fall.”
I must admit early 2019, leading into the Federal election, I was concerned with the direction of the property market. We were already in the middle of a substantial decline in property prices. We had the negativity associated with the Royal Commission into banking. The Australian Labor party had earmarked policies around franking credits & negative gearing that would have thrown fuel on the fire (declining property market).
Post the 2019 Federal election, Melbourne saw property prices recover from the low’s of May 2019 within the space of 9 months. This sentiment was seen predominantly in the inner 10-20 km ring suburbs of Melbourne.
A low supply of properties and three cuts to the cash rate by the reserve bank, lead to the record low-interest-rate environment we are currently witnessing.
WHERE ARE WE NOW?
Fast forward to (July 2019) the market has been in a mini cocoon since COVID 19 started. The supply of properties available fell off a cliff as vendors lost confidence. As we transition out of lockdown, one trend is now apparent. When the government issued work from home rules, many people spent more time at home than ever before. The way we live our lives has possibly changed forever. Working from home has become a common and accepted practice. This trend has led to people realising that their current living arrangements are not conducive of working from home. Many people need more space and a dedicated area for working from home.
COVID 19 has seen the unemployment numbers spike, and this had a dramatic effect on vacancy rates across the board. Rental yields have fallen, with some investors requiring to take up to 20% less to secure a tenant. The most significant pain has been in the high-density apartment market in the CBD. You can search online and see the number of apartments available for lease is at record highs. With international travel banned and interstate travel limited. The Air B n B rental market and International student market has almost come to a grinding halt. Vacancy rates in the CBD of Melbourne in April 2019 were at 1.9% and are currently sitting at 5.4%, which is the highest point in more than a decade.
The current vacancy rate highlights the importance of asset selection when buying an investment property. We recommend that you look for an asset class that is highly sought after by owner-occupiers when investing in bricks and mortar. We also recommend that you spend money on updating the property and making it attractive to tenants.
OUR ADVICE FOR BUYERS
As the banks wind back their deferred loans for 429,000 mortgages and the National Job Keeper stimulus ends. If your employment is stable and you have cash in the bank. There are going to be some amazing opportunities for buyers in the below categories in the next 12-24 months.
Families that need to upsize to a more substantial house.
Buyers residing overseas or interstate, with plans to return to Melbourne.
First Home Buyers that wish to enter the market. https://www.industryinsider.com.au/first-home-buyers/
Homeowners who have equity and are looking to invest.
Investors that want to grow their portfolio.
Rentvestors looking to grow their portfolio.
Let’s hope we can contain the second outbreak in the inner North of Melbourne and limit the disruption to small business and the economy.
Main Photo – A beautiful family home, we helped our clients buy at auction recently in Hampton East.