The Australian property market is always a popular topic in media. Unfortunately, a lot of what is said in media has very little to do with reality. Many new investors have learned that property does not always go up in price. Even worse, it is actually possible to lose money if you haven’t done your homework before you buy.
First, it is important to point out that there is not one single real estate market in Australia. This is quite obvious from the fact that only Sydney has shown strong price growth over the past year, around 13%. But also Sydney is made up of a number of different property markets. The same is true for all the major cities.
As mentioned, Sydney has been the star performer the last 12 months. But also in Sydney, one has to be careful. At the moment, a lot of units are being built. This is unlikely to cause any big problems given the almost chronic housing shortage in Sydney. But it is best to avoid buying apartments in areas with a lot of upcoming supply. Houses in Sydney are a safe investment but the prices are high and the yields are poor. Additionally, many believe that price growth in the future will be limited. In other words, although Sydney is a good place for property investments, it is best to be careful and be prepared for slower price growth.
Melbourne unit prices have defied gravity for a long time but the oversupply is just getting worse. The prudent investor should avoids apartments in inner Melbourne. According to recent figures, more than 24% of inner city units were sold at loss, despite that the average holding time was more than 6 years. It is safest to stick to houses in Melbourne, but prices are high and yields are low. The price growth in Melbourne for the last 12 months was 4.7%, not bad given the low inflation and interest rates. But it was mainly houses that experienced price growth, not units. Unless you really know what you are doing, Sydney looks like a safer choice than Melbourne.
Like Melbourne, Brisbane is suffering from an oversupply of inner city units. Despite that, the average price growth in Brisbane has been 3.9% over the last 12 months. Given the high prices in Sydney and the oversupply in Melbourne, many experts are recommending Brisbane. But it is best to stay clear of units, especially close to the CBD. Apart from that, Brisbane can be a good place to invest in. But don’t expect any tremendous growth the next couple of years.
Perth seems to be heading for tougher times. The property boom in Perth has quite clearly come to an end, property prices have fallen slightly during the last 12 months. It will be interesting to see what happens next. The future for units looks bad, plenty of units are being built at the same time as the vacancy rate is getting towards 5%. For houses things look slightly better but quite clearly there is no hurry to buy property in Perth. It is likely that prices will continue to fall.
Adelaide has been a bit of backwater for a long time. With 2.5% growth the last 12 months, property in Adelaide seems to be relatively stable, no spectacular growth but neither much risk of major price falls.
Property prices in Canberra have increased with 3.0% over the last 12 months. It is a little bit of a surprise given that many had warned that the cuts in the budget would create problems for property in Canberra.
If you are thinking of buying a home, it is probably best to take advantage of the low interest rates and try to find your dream home as soon as possible. If history is anything to go by, waiting for prices to fall is a high risk strategy. Obviously, you should bargain hard, especially if you are looking for something outside Sydney. But be careful with apartments in central Melbourne, Brisbane and Perth, the huge oversupply could very well result in significant losses for many. The same goes for Gold Coast, which seems to be heading for an oversupply of apartments once again.
If you are thinking of investing in property, it is very important do your research before you buy. Quite clearly, central Melbourne and central Brisbane are not good places for investments. Despite all the hype, the oversupply often makes it difficult to just find tenants and rents are rather going down than up. Perth looks even worse with a high vacancy rate which is likely to get even higher, meaning that rents are likely to plummet. On the whole, investors need to be very careful with units. In many places, overpriced off-the-plan projects targeting foreigners and gullible people are creating oversupply. Houses are a safer bet but be aware that in large parts of Australia, house prices have not increased much despite record low interest rates. In essence, less than 10% of the available properties are good investments. You need to make sure that you find one of the good investments, buying the wrong property could very well become a financially painful experience.