2017 property horizon
In short during 2017, like 2016, you’ll still be better off in than out of the property market. You would really be kicking yourself if you followed the market predictions made at the end of 2015.
Lose, lose + lose, lose
Just over 12 months ago, some owners were moved to put their properties on the market thinking that we were in for a tanking.
I know people who sold in Fitzroy, Kew, and Vaucluse in late 2015-early 2016. They had planned to cash out and then buy back into the market at a lower rate. Unfortunately, the opposite happened. They not only sold too low, but missed out on around $300,000 in equity. In addition, they had to rent and couldn’t afford to get back into the market in the same suburb.
In each case, the owners based their decisions on high level market forecasting and their local real estate agent who was focused on getting the sale. While we have the benefit of hindsight now, further local / suburb focused information may have changed the outcome. There were certainly many winners in 2016 who sold at record highs.
So what do you do? No one knows for sure what the market will do, so it’s important to consider your personal plan as the main base for decision making. Next, undertake structured research along with a cost / benefit analysis before taking action. Make sure that research takes into account local or suburb specific drivers for any selling or buying decisions, and ensure you speak to a range of people who don’t have a vested interest in influencing you to sell.
What to buy?
As to 2017 purchases, the forecaster who has gained the most publicity this year has been Louis Christopher from SQM Research. At Crave, we identify SQM as one of the more reputable research organisations. They are independent and, as documented in the Australian Financial Review, have one of the most accurate track records. The table below outlines SQM’s 2017 forecast, along with that of BIS Shrapnel and Core Logic.
Take care to note these are high level forecasts, and each suburb within the greater city areas will have its own drivers for growth and price contraction. To understand performance at a suburb level, apart from big ticket indicators such as sale prices, rental returns, re-zoning, infrastructure changes and employment movements, we recommend you stay on top of the supply data points – namely, the number of properties available for sale and rent, and the time it takes for property to sell.
In addition to the market forces already mentioned, key high level market influences we’re also monitoring include:
Trump impacts – honestly . . . it’s pretty much anyone’s guess what the impacts will be at this point. It seems even Trump himself doesn’t know what he’s going to do. Maybe he can make market uncertainty fun?
Interest rate changes – barring any impacts from the point above, interest rates are not really impacting the market at present, particularly as the banks are qualifying loans with an extra 2+% in their servicing calculations.
APRA market interruptions – impacts from APRA market involvement have eased, but APRA has shown they will act again if required. This is a good thing, as their involvement only strengthens / stabilizes the market in our view.
Negative gearing – despite the noise coming from a few politicians using it as a hot button for attention, any changes are looking unlikely, at least until after the next Federal election (2019-ish). See below for the current election calendar.
Supply – Sydney is really struggling with this issue at the moment and there’s currently no end in sight, particularly given the predictions of population increases, infrastructure activity and the resulting increase in employment. Any ease on pricing due to an increase in supply feels like a long way away at the moment.
Boomers – we are seeing an uplift in lifestyle suburbs with Boomers as one contributing factor. They may also be the saviours of any predicted unit over supply – that’s if the developers get their configurations right and design attractive properties for this large part of the property market.
Employment v the economy – it finally looks like Australia is coming out of a GDP flat period. Employment is extremely patchy though – Queensland, Western Australia, South Australia, and the Northern Territory need to do considerable work on this issue. Once again, we look to the election deadlines for any increased focus on this.
Spruikers – this is still a nightmare issue which needs to be addressed on a number of fronts. The only real protection buyers have against property charlatans is to take an opportunity cost approach to your buying. This means you need to compare any property presented to you in a hard sell or ‘education’ situation against the price of other property in the same suburb. Spruikers will 99.9% of the time be hyping new property, so that’s another red flag for you.
There will be plenty of opportunities in 2017, as well as some traps to avoid. The best insurance is to always buy where there’s an opportunity to add value or ensure your purchase is tightly aligned to your needs. Capital growth should always be your goal, but if your specific needs are met, property value increases will be just the icing on the cake.
One mini comment relating to market performance
It was unfortunate Sussan Ley’s ministerial career had to end under such acrimonious circumstances, but the media missed the real story. While I have no knowledge of her perceived or real mis-use of Parliamentary expenses, the other scandalous act was committed by the person that advised Ms Ley to spend $800,000 on a high rise unit on the Gold Coast.
I really hope Ms Ley had some great personal reason to purchase the unit (and potentially other units in the same area . .tsk, tsk). However, if that was a straight out investment, she could have done much better buying in about 100+ other locations.
We regularly buy property for our clients on the Gold Coast, but they buy for the right reasons focusing on property that will deliver significant results. I wonder whether anyone spoke to Ms Ley about the strata fees, the status of the sinking fund, the state of repair of the building (particularly as the property is close to the beach front), as well as the potential for capital growth and yield. Of course, every investor needs to factor in their personal reasons for selecting property but as a straight investment, buying multiple high rise units on the Gold Coast is not something we would recommend. Even in a buoyant year like the one we’re expecting for 2017.
Buy smarter = limitless ways to build lifetime income
Crave Property Advisory is a unique property strategy and buyers agent service. As the only independent and unbiased advisory that can help you use any property strategy Australia-wide, Crave’s services extend to home, investment and commercial property. A highly client focused organization, Crave developed the Modular Investing System (MI System) to provide clients with the ability to use a tailored mix of strategies and efficiently build profitable portfolios that create lifetime income.
Debra Beck-Mewing is the CEO of Crave Property Advisory, and has more than 20 years’ experience in property investing, Australia-wide. She has used a range of strategies to build her property portfolio including renovating, granny flats, sub-division and development. Debra is skilled in identifying development opportunities, and sourcing properties that have multiple uses and multiple exit strategies. She is a Qualified Property Investment Advisor, licensed real estate agent and also holds a Bachelor of Commerce and Master of Business.
Disclaimer – This information is of a general nature only and does not constitute professional advice. We strongly recommend you seek your own professional advice in relation to your particular circumstances.