Australia’s Property Markets – What Does 2019 Hold?
If you’re thinking of buying an investment property in 2019, STOP! Don’t do anything until you watch this video or read the transcript
Hello, it’s Niro here from Investment Rise where we help people invest in property.
And if you’re watching this video right now, you’ve probably seen the headline and you’re quite keen to find out what’s going to happen for 2019 because right now, there’s a lot of confusion out there in the media and online, especially after 2018, which was a huge year of change.
So, my aim with this video is to help dispel some of the confusion and give you a lot of clarity about what I expect is going to happen in 2019.
Now, I also expect that this video’s going to be different to a lot of what you’ve seen online and in the media. So, I expect I’ll probably get some criticism for it, and that’s fine.
In fact, when I came out in 2016 and said, “Look, the Sydney boom is over. If you’re looking to invest to get some capital growth for the coming few years, Sydney’s not the place to invest in.” I copped a lot of flack for that online.
You can probably even Google it. Some of that’s still out there. In fact, one guy actually sent me an email, and he said, “You’re an idiot”.
To be honest, he actually used a bit more choice language than that.
He said, look, the Sydney market’s going to keep rising for the next 10 years. I’ve got two properties, and I know what I’m talking about, or words to that effect.
Now, look, having two properties is a great result, but that doesn’t make someone a guru. So, you’ve always got to be careful about who you’re taking information from.
And as we know, what I said in 2016 has come to pass with the Sydney market now dropping in value. We’ve had the biggest price drop since before the GFC and prices are now sitting literally back where they were in 2016 and expected to drop further.
So, I will cop some criticism, I expect, because I’m going to say some things that are different. But look, it won’t be the first time, as I mentioned.
In fact, even in 2011 when I started buying in Sydney, a lot of people said “Niro, you’re crazy. The Sydney market has been flat for so long. We’ve seen no price growth in essentially a decade. That means that prices are going to fall. There’s going to be a crash. Now’s the time to actually sell.”
That was in 2011!
You and I both know what happened to the Sydney market since then. So, I have copped a lot of criticism. I expect this video is going to be different to some of the stuff you’ve seen and heard online, but I guess I’ve got the results. I’ve helped clients now purchase well over $66.2 million worth of property.
And so, I really hope that I can dispel some confusion and give you some clarity. Not because I’ve got a crystal ball. I mean, there are no guarantees.
And look, yes, my general advice warning is that this is not financial advice This is just general information only.
But what I really hope is I can give you the benefit of now, my 17 years of personal investing experience and having helped, as I said, clients purchase well over $66.2 million worth of property.
So, what is it that I expect to happen this year?
Well, let’s go around the country, starting with Sydney.
In 2018, I said at the start of the year, the Sydney market is going to drop. It’s not going to be a crash, but I expect prices will drop. We know now, according to CoreLogic, prices have dropped between 6 to 7% and expected to drop further.
At the time, though, the Melbourne market still had a bit of momentum. At least a lot of areas in Melbourne did. And a lot of people who could see that either Sydney was going to drop or was unaffordable for them went and bought in Melbourne.
And I cautioned them against that. I said, “No, no don’t do that. Yes, the Melbourne market still has some heat in it and it’s still rising in value, but the rate of growth is decreasing. And also the Sydney and Melbourne markets move in parallel. So normally what happens is the Sydney market rises first, then Melbourne follows. And when the Sydney market falls, the Melbourne market falls shortly afterwards.”
And that’s exactly what happened with the Melbourne market now starting to fall. And Moody’s Analytics and CoreLogic, in fact, expect that in 2019, the Melbourne market will be the worst performing market in the country due essentially to a lot of the unit development around the inner city.
So, Sydney and Melbourne, not a lot of growth left in them.
In fact, those markets will probably fall. I would say somewhere to the extent of about another 10%.
But we are not going to see this price crash…
That many people are talking about of somewhere between 40 to 50%.
These markets are not going to crash.
What I expect is going to happen is they’re going to fall probably throughout this year and then you’re going to see a long period of essentially zero growth.
Prices just being flat. In other words, the prices that you get for property at the end of 2019 will probably be the same that you’ll pay in 2026, for example, okay?
So we’re going to see essentially a long period of flat growth, no growth as people try to catch up in terms of affordability and as wage growth plays catch up.
But why no crash?
That’s a fair question because we’re seeing a lot of talk about that in the media. Well, look, certain suburbs are going to perform worse than others, there’s no doubt about it. But let’s take, for example, a suburb like Longueville in Sydney.
Yes, it’s at the upper end. It’s got a median price point of over $4 million. But 55% of homeowners in Longueville don’t have a mortgage. They’ve got a home worth 4 million bucks plus, and they’ve got zero mortgage. Why would that suburb crash?
In fact, we know from statistics that more and more people are actually ahead on their mortgage, so unless, for example, we have a nuclear bomb fall on us, some sort of a global catastrophe or we have a situation where the government decides in their wisdom, to take all the jobs out of Sydney and put it in the back of Bourke somewhere, Sydney and Melbourne are still where the majority of jobs are.
There is still a demand for property. We have a growing population. We still have migration. Yes, I know that there’s talk about the government cutting migration numbers, but if you’re in Asia. If you’re living in Asia right now, one of the favoured places to live is Australia, primarily Sydney and Melbourne who get the lion’s share of international migration.
So no, I’m going to say right out here, there is going to be no property crash.
You are going to see headlines of prices plummeting, prices tumbling. The media’s going to use all those words but look at the data.
I mean, I recently saw a report that said that Sydney prices have plummeted by 6%. During the boom, 6% was essentially just 6 months’ worth of growth. It was nothing. So, yes, we’re going to see price falls. But as I said, then we’re going to see a long period of zero growth beforethe market takes off again.
I still believe Sydney and Melbourne will be our most expensive cities going forwards. However, if you’re looking to invest in property to make money and get a capital gain over the next decade, I’m not sure if Sydney and Melbourne are the places to look to invest in.
So, what about everywhere else?
Perth has been a place a lot of people have been talking up for quite some time.
In fact, last year, people said Perth is rapidly approaching the bottom so now is the time to invest. In fact, there was a report from the Housing Industry Association, which said that the Perth market is rapidly approaching its bottom – and people were getting excited by that.
Meanwhile, my response was, “Hold on, if something is rapidly approaching its bottom, that just means it hasn’t got there yet. It means prices still have further to fall.”
So, I said, “Don’t enter the Perth market in 2018. It’s not the best place for capital growth in the country.” And we know that the data shows that the Perth market continued to fall.
Yes, I do believe that the Perth market has some potential. But I think you’re going to see prices essentially still be flat with a little bit of negative growth, a little bit of price falling still in the Perth market going forwards as they sort of try to overcome the problems they had with the mining boom, or mining bustwhich Perth and WA as a whole really suffered from.
Adelaide and Hobart were the two strongest performing markets this time last year. A lot of people said they’re the places to invest in, but we know from data that Adelaide prices have actually started to fall slightly and Hobart is poised essentially where Melbourne was this time last year.
Prices are still rising, but the rate of growth has rapidly diminished. It’s slowing down. It’s like it’s decelerating to a stop before turning around again. So, I expect that the Hobart market will continue to slow down.
It has however proven to be more resilient than I expected. Yay, Hobart! Yay, Tassie! But I don’t think, again, that you’re going to see a lot of growth going forwards in that market.
So, the question is well, where do you invest for growth?
Well, the first thing and the easiest way to know what you’re doing is avoid the unit market as a whole. I still believe that the unit market’s going to have a lot of problems anywhere you buy due to just oversupply that is out there at the moment. So, units, stay away from them.
You want to stick to houses.
If we look at where the population is moving to the fastest right now, the capital city that’s got the fastest rate of growth in terms of population is Brisbane.
Now, please don’t say that Niro said go and buy anywhere in Brisbane. No, that’s not what I’m saying.
What I am saying is that there are a lot of areas in Brisbane that have great potential for capital growth. In fact, realestate.com.au reports that the suburbs around Australia that had the most interest, and that gotthe most number of views online were in Brisbane.
That gives you an indication of what’s happening. More and more people are looking up towards the Sunshine State which has been flat, though, for so long. In fact, it’s been flat since 2010.
But remember what I said a bit earlier on about the Sydney market?
When I was buying in Sydney in 2011, the Sydney market had been flat since 2003 / 2004. We know what’s happened since 2011 though.
So, often what you’ll see in some of these markets is that we go through a period of flat-lining before prices start to rise and I expect that you will see that the Brisbane market will be the strongest performing market for capital growth over the coming few years.
However, I don’t necessarily think you’re going to see the 15%, 20% growth per annum that we saw in Sydney and Melbourne. Not because Brisbane’s not capable of that but it’s because the banks are deliberately trying to restrict growth in the market with their tighter lending regulations.
So, you’re going to see good growth, but slower growth, I expect, in the Brisbane market while Sydney and Melbourne correct themselves.
Look, regional centres is the other big thing to consider.
I know a lot of people out there look at regional towns because of the so called cashflow opportunity there. But here’s the thing to look at.
Right now, about 2/3 of Australia’s population live in capital cities. That’s expected by 2030 to 2035, according to Australian Bureau of Statistics to be ¾ or 75%. So, in other words, the percentage of people living in our regional towns is decreasing.
If that’s the case, what’s the likelihood of you getting capital growth when the population is not growing? When you have a shrinking population, you also have a shrinking demand for property, which means prices are far less likely to rise. In fact, they are virtually guaranteed not to.
Now of course, you might say, “Yeah, but I’m still getting cashflow.”
Well, here’s the problem with just focusing on positive cash flow.
When people are moving away from an area, you’re going to have less demand from tenants, as well.
So, the property might look positive cashflow on paper, sure, but if you can’t get it rented, you’re left holding the can.
We’re seeing that, in fact, in Sydney right now where as I mentioned 12 months ago, I saw the vacancy rate on the increase, especially in some areas in the northwest of Sydney. I said look, please be careful.
Today we know that there are more properties available for rent in Sydney than we’ve had for over 10 years and there are still lots of cranes in the air – there are still lots of units being built.
So, it’s definitely a time to be cautious.
Again, I’m not saying the market’s going to crash, so don’t go out there and just sell everything if you don’t need to. If you can sustain the next few years, feel free to hold in the Sydney and Melbourne markets, but…
If you’re looking for growth, you’re either going to have to manufacture the growth, and what I mean by that is you might want to look to buy an older property, renovate, add value and then see if you can create some equity from that. That’s manufactured equity.
You’re not going to be able to rely on the markets, especially in Sydney and Melbourne to give you the equity growth and the capital gain that you’re looking for.
If you’re looking for that sort of simple, safety first, investing where the market does all the work for you, I would certainly look into certain areas around Brisbane.
However, the Brisbane market is different to Sydney and Melbourne, so don’t apply the same paradigm of thinking I need to buy a two bedroom unit, buy something close to the city. Those are not the areas necessarily that are going to give you the best capital growth.
I really hope this helps, me sharing my thoughts about what I expect is going to happen in 2019. Let me know your comments below and if you think this video can help someone, please share it and I look forward to speaking to you soon. Bye for now.
September 17, 2020
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