In property investing, one of the edicts proved time and again is that those with a long-term mindset reap the greatest rewards. When an investor buys the right type of asset at the perfect time for them, and then holds that property for two to three price cycles, they will achieve far more financially than if they’d tried to “time” the market.
Current media headlines are rushing to proclaim the sky is falling in on Australia’s property markets, but from where I sit, I see a clear blue vista that’s full of promise. I believe now is actually a prime time for those building a portfolio to deliver a successful retirement plan.
Why you should buy
There are several factors playing into the hands of property investors looking to purchase right now, and they are backed by irrefutable evidence.
Firstly, prices are falling across many markets. I know, this sounds dire and it takes a steely determination to be a buyer when this is happening. That said, value retraction is exactly when you want to be active – particularly given the history of Australian property price movements.
CoreLogic released a telling graphic this month comparing all historic peak-to-trough price fall periods from 1989 to 2023.
This study makes me feel bullish because the current downturn from early 2022 to now has been the quickest and most substantial – but history shows the bounce back is likely to be just as dramatic.
Property prices may retract further this year depending on several factors that I’ll discuss below, but based purely on what’s happened in the past, it’s very likely prices are (or soon will be) at their floor. It should also be remembered that this 8.38 per cent fall has come off the back of a 28.9 per cent trough-to-peak increase in the preceding years too. Another example of why long-term thinkers come out ahead.
The other caveat we must attach to this analysis of price falls is that it’s a national perspective, with the figures driven primarily by an all-encompassing description of capital city markets. As we all know, the rich tapestry of the Australian real estate landscape encapsulates myriad micro-markets, many of which will perform well both now and in the future.
Should I feel more confident about 2023?
While there will probably continue to be negative drivers this year, I think the positives are coming out ahead.
First up, let’s look at interest rate movements.
The primary downward driver of prices in 2022 was the RBA’s sustained program of interest rate increases. This was despite Australians having record savings at their disposal post pandemic and most borrowers having been approved for loans with interest rate buffers of 2.5 to three per cent above their signed-on interest rate.
Prices fell last year mostly because borrowing power diminished. Buyers would spend more if banks could lend (and they could service) a higher loan, but an approval for those extra funds couldn’t be justified by the lenders’ credit departments.
Well, there is evidence we are now approaching the end of the rate rise cycle. While we have seen inflation remain elevated in Australia, the latest figure was heavily influenced by high consumption over Christmas. I suspect inflation is attenuating already and the first set of figures for 2023 will confirm this. That’s certainly the case overseas where inflation is coming under control – just look at the latest US numbers. The result should be an RBA more willing to wait and see what unfolds rather than one that raises rates… and when rate rises end, expect confidence to return to the market in force.
Let’s now look at immigration. Our borders are being thrown open to international arrivals. That includes skilled labour and long-stay residents such as students and backpacker travellers.
In fact, combining the government’s announced quota hikes for skilled immigrants, families, temporary residencies and all else indicates that 175,000 to 200,000 more people per year will come to Australia. Most notable of all is they’re arriving in the middle of a rental crisis which has seen capital city vacancy rates fall below one per cent.
For investors, demand will explode and supply will diminish which equates to rising rents, falling vacancies and increasing property values.
Bad news headlines are good for investors
Confidence among consumers and businesses is running at a low and it’s no wonder.
The bad news headlines have just kept coming. Many are fuelled by analysis from economists predicting doomsday scenarios for our economy. Funnily enough, many of these were the same people forecasting a 20 to 30 per cent fall in property values when the pandemic hit in early 2020. Despite their analysis, we saw record price rises.
In short, any short-term pain will be more than offset by the long-term gains.
The key will be asset and location selection. Certain suburbs and property types will continue to outperform the market and bring the best possible benefits to their owners. The best way to unearth these opportunities is via thorough research and advice delivered by a qualified property investment advisor. They work through your goals and put you into the right kind of real estate to reap huge rewards over the long term.
Always review any property investment strategy, location research and investment analysis data with a professional, QPIA (PIPA Member) qualified & accredited ASPIRE Property Advisor Network Advisor. Never rely on glossy sales brochures or property marketing information, ensuring a property is right for your strategy. Property Investing is about BUYING a property that matches your goals and aligns with your investment strategy. Never be SOLD an investment, know your numbers!
Visit www.aspirenetwork.com.au or call our office to be connected with an accredited and independent Property Investment Advisor on 1300 710 933.
