The newspapers, in fact all of our media, are full of commentary regarding the residential property market in Australia. Some say the market is hugely overvalued, others say there is still growth to come. How are we to make some sense out of all of this background noise when all that we want to know is “Is it safe to invest in property NOW?”
I’m a grandfather now, many times over in fact, and my father taught me to always have a degree of healthy scepticism particularly about what people told you or you read in a newspaper. Get the facts he would say and make up your own mind.
Clearly most residential property prices will rise in the future and usually beyond their previous highs at some future point of time. This is because of supply and demand criteria and just every day inflation. As more and more of the world’s population moves to live closer together in our larger cities, the land closer to the centre of those cities becomes more desirable and of course more expensive. This is because of, at least for most people, a desire to live closer to where they work and to be closer to all of those lifestyle amenities many of us seem to like so much these days.
Property prices can and do fall if there are more properties in an area than there are people to occupy them. Think the closure of an industry for example mining or for that matter any industry in a location where other jobs are hard to find. Australia is a wealthy, high labour cost country and most things we need are going to be manufactured in a highly mechanised manner without the need for a large low cost workforce. More likely than not, the things we want will be imported from somewhere where the economies of scale in manufacturing make more sense. Most of the jobs available for Australians will increasingly be in our large cities.
It is confusing and I am not surprised that many people are confused and wary of the market. This is because everyone you speak to seems to have a different story about property in Australia. The truth is and has always been that there is no such thing as a single Australian Property Market. Different Australian States are at different points of time in their property cycles and to make it even more confusing some localities within specific regions underperform or outperform the general market place in those specific locations.
But there is a correlation between capital city prices in Australia and sometimes for all sorts of reasons this correlation can get out of balance as it is now. So to put real numbers into this discussion I have done some research to show you some historical reference to allow you to compare the median property prices in capital cities in Australia in 2005 and ten years later in 2015. (source ABS Data: Residential Property Price Index – eight Capital Cities September 2015).
|Median Property Prices|
|% of Sydney Price||65%||64%||64%||56%||50%||60%||74.50%|
|% Growth Median Price in 10 Years||82%||85.90%||54%||67%||55.60%||36.70%||97%||62%|
What you can see from the ABS Data above is that all capital cities have experienced capital growth over the last ten years, some more than others, but of the growth states, Brisbane has experienced the lowest growth and for a growth state an upward correction in prices is well and truly overdue. There are signs that that correction is underway however that does not mean that you can buy any property and experience good capital growth. Every property needs time in the market and the selection process is paramount. The type of property you buy and the locations of those properties need to be carefully considered.0