Is the property market safe as houses or becoming more of a gamble for investors?
Property investing in Australia is becoming ever more popular. The latest statistics from 2013/14 show that 5.7% of taxpayers reported owning a rental property, up from just 7.4% in 1989/90. So is this growing trend for betting on property paying off? Are investors beating the odds with an asset that can double in value every 7-10 years?
Where you’re buying has got a lot to do with it. Figures from Core Logic show median house values have doubled in the decade to June 2016 in just 14% of Australian suburbs and that number drops to 10% for apartments. And you might not be surprised to learn where you’d find the majority of these goldmine locations. If you bought in Melbourne or Sydney in the last decade, your chances of hitting the jackpot are much higher, as 51% and 44% of suburbs in these cities saw house prices double in each city respectively.
The only other city that came close to these figures was Darwin, with 19%, followed by Perth with 7%, 4% for Canberra and 3% each for Brisbane and Adelaide. And none of Hobart’s suburbs experienced a 100% increase in median values.
So if you’re hoping for a big win on property, location really matters, but timing is important too. In 2016, we’ve seen major changes in global politics, including the Brexit referendum result. And with a highly charged US presidential election just days away, what kind of fallout can we expect for the Australian property market?
The first casualty of a controversial election result is often financial markets. And when confidence in stocks and shares is low, investors may look to property for steadier, safer returns. As the whole of Europe is likely to be affected by the aftermath of Brexit, this may lead to loss of confidence in European property among foreign investors, making Australia an attractive alternative for their portfolio.
Looking closer to home, are there still reasons to be taking a punt on property? Well, interest rates are still at an all-time low which can only be good news for fuelling borrowing, and demand, for property.
And negative gearing is back in the headlines again. After telling us he’s standing by negative gearing in the May 2016 Federal budget, Treasurer Scott Morrison defended it in his recent speech about housing affordability, calling it “a long established tax principle predominantly used by mum and dad wage earning investors.”
Morrison also touched on a trend that could be a concern to property investors. His comment that “risks around an oversupply in inner-city apartment markets have also received increased attention in recent times,” is backed up by figures from Core Logic reporting a record high in completed apartments in the quarter to June 2016.
Because apartments are so popular with investors – they own 48.1% of unit dwellings in Australia, compared with just 17.3% of houses – this unit building boom can be seen as a threat to their income. It could reduce median values and rental returns if the supply of units for sale and rent starts to outstrip demand.
Look or leap?
So is property still a good gamble for your investment dollars? Well, the property market has been growing for 52 straight months, with an overall increase in median value of 41.3%. And if you’re wondering if this is the peak before the crash, there are a lot of investors betting on this current wave and they’re borrowing to back themselves. Since June 2012, investor lending has grown in value by 74%, compared with 53% for owner occupiers.
But it’s important to think about your investment strategy and what you expect to gain – an asset that will grow in value over time or a steady income from rent, or both? Bearing in mind the current trend in lower rental returns, you may want to think more carefully about why and where you’re investing. Speaking to an Aussie Broker can help you understand what’s involved and how much you can afford.
Are you planning to invest in property now or wait and see? Share your thoughts in the comments below.