Activity in the Australian property market in 2014 panned out much as anticipated.
We began the year off the back of the “sellers’ market” of 2013, in which buyers were willing and eager to meet the high prices asked by sellers. We saw interest levels in Australian property soar, as swarms of investors and owner-occupiers alike flocked to large numbers of listed properties, for fear of missing out in such a hot and in-demand marketplace.
Home values grew 9.8 per cent higher across the capital cities during the 2013 calendar year, according to CoreLogic (formerly “RP Data”). Recent data by CoreLogic also demonstrates that it’s possible we are on track to reach a similar level during 2014, with capital cities recently recording a year-on-year increase of 8.5 per cent.
This continued growth might explain why 2014 saw a large amount of media attention dedicated towards the “overheating” of the Australian property market. It’s my opinion that this was a result of particular pockets of growth recorded in specific marketplaces, not the nation overall. There were large differences on a state-by-state level, across capital cities, in metropolitan versus rural locations, and across individual suburbs themselves.
As an example, two areas in particular which experienced higher-than-average increases in 2014 were the Sydney and Melbourne markets. At this stage, according to CoreLogic, the year-on-year increase for Sydney dwelling values is 13.1 per cent, and Melbourne 8.9 per cent. It is my belief that this has largely been caused by undersupply in these cities, which is only now catching up as higher levels of new stock hit the market. This increased stock has taken a degree of heat out of the market, and I believe its impacts will continue headed into 2015.
A trend which received an enormous amount of media attention throughout the year was the impact of foreign investment on the Australian property market. Story after story warned of the dangers this would have on the market as a whole, as increased demand from this group was thought to be pushing prices up to unsustainable levels. Commentary on the topic suggested this group was “squeezing out” domestic buyers, in particular “struggling” first home buyers, and was rendering many markets unaffordable for Australians.
However, interest in the Australian property market by foreign investors is not at all a new phenomenon. There has always been a very strong interest from this group in our property market, which I believe has likely been driven by our stable system of government, and the security one feels investing in property. It’s my belief that this situation has been steady for quite some time now.
In fact, my greatest concern in this regard is that if regulation does tighten regarding foreign investment, it may not be there when we need it to assist in maintaining healthy levels of market activity.
Despite such negative commentary on the topic, both the Foreign Investment Review Board (FIRB) and the Reserve Bank of Australia (RBA) have had ample opportunities to take action which might curb this activity, and have not done so. If the regulatory bodies responsible for monitoring and acting on this type of activity have indicated that they do not consider it a risk to the market, I am also lead to believe that it isn’t.
THOSE WHO MISSED OUT IN 2014
Anybody who didn’t enter the market in 2014 is sure to be feeling disappointed after witnessing the capital gains which many have realised throughout the year. Even those who have not yet seen capital gains need only be patient, as the longer they remain in their property, the more likely they will be to achieve capital gains in the future.
Those who haven’t yet entered the market may be taking a very hard look at doing so in 2015, given the amount of stock now hitting the market. What I would suggest to this group is to factor the possibility of an interest rate rise into their budgeting.
Though the RBA continues to communicate that there is no cash rate increase expected in the short-term. However an increase on mortgage rates from 4.5 per cent to 5.5 per cent would feel like a bigger increase than from 10 per cent to 11 per cent for. For this reason I suggest investors and home buyers alike put in place a financial buffer which prepares them for such a possibility.
Source: Charles Tarbey, Chairman & Owner of CENTURY 21 Australasia