What is a property bubble? Well, all the talk in the media is that property prices are too high and we are going to hit this massive wall and there is going to be this mighty property crash, the bubble will pop and the price of properties will fall up to 50%.
Is this property bubble situated in a couple of the markets or is this Australia wide? We have seen the property prices in WA drop by about 10%, this was due to the declining mining sector and people actually moving away from Perth to the eastern sea board. Now there will be a slight over supply of dwellings in WA and we are probably likely to see it drop another couple of percent. The mining towns will be the hardest hit some dropping by 50%, which was the highly speculative market where you where always taking a big risk to make big profits, not a place to invest for the mum and dad investor. We expect that the later half of 2018 will be the bottom of the WA market, but it will probably take some time to come back and see growth out of WA.
So what is happening in the other parts of Australia? We must remember that Australia has a whole lot of different markets and property clocks working in each area. Australia is bigger than Europe and look at how many countries and areas there are there with different property markets. For example; Sydney, Melbourne, Brisbane are all independent markets and have different forces affecting the growth and decline of these markets.
We can all see that the Sydney market is hot; probably at the top of the cycle, so the property clock is telling me it is at 12 O’clock. It is likely to come off and have a slight down turn or a property bubble pop, if like WA, Sydney drops by 10% has this been a massive crash or just a market adjustment and a cooling off of the market. Considering that the market has double in about 4 years, any one that has owned property during this period would still be happy even if it dropped by 10%. They still had a 90% increase….. not bad in my book.
They (the media and property economist) are stating that there will be an oversupply of units in Sydney but at present they are still getting snapped up. My personal opinion is that Sydney will have a small drop but nothing like the 40-50% people are stating as it is still a very wealth city with high incomes and a lot of old money or family money that is passed on through the generations.
Now Melbourne is also motoring along with its growth following in the footsteps of Sydney. The pattern is very similar so again we are seing this property bubble.
While every year we have immigration of approximately 200,000 people and population growth of about 150,000, this gives us roughly a 350,000 growth of people across Australia – we need to build dwellings and provide jobs for all these people. This is going to suck up the housing oversupply if it turns out that there is one. Also a raft of government legislation by the states on increased stamp duty, land tax etc.. on foreign investors is going to slow up their apatite (they hope) but it seems that the stats out of Victoria where the stamp duty is 7% has made little difference to overseas buyers. I think what the government is trying to do is get all the properties sitting vacant that are owned by overseas investors put back in the rental pool and allow more people accommodation.
Now the Brisbane market is a much slower burn than both Sydney and Melbourne, but it also has the two biggest cities surrounding it – the Gold Coast and the Sunshine Coast. These areas are both going through infrastructure booms and the medium house price in Brisbane is $650,000 according to the Real Estate Institute of Queensland (REIQ), which is much more manageable for the average family.
Do I think that we are in a Property Bubble? A little in the capital cities of Sydney and Melbourne. It will affect you more depending on the type of property and location, as to where you are investing in. How much of the downturn we are likely to see in Blue Chip property? I’m thinking very little as there is usually always more demand out stripping supply and there is no more land in these areas so you must pay the price to enter the market there. The best part about property is that you are in control of when you buy and sell, so like any investment you much watch the market and make the right decisions for your personal investing strategy and plan.
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