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Property Market Insights: Advice for forward-thinking property investors

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Property Market Insights: Advice for forward-thinking property investors

In Australia’s 2022 property investment market, long term gain will outweigh short term pain

PropHero’s Mickael Roger reflects on the recent past and shares some advice for forward-thinking property investors

Interest rate hikes, inflation and economic uncertainty are all giving rise to some troubling concerns for property investors.

And then there are those commentators claiming everything from a mild correction to a cataclysmic crash in property prices!

Many investors have been left wondering what’s happening and what they can expect next.

Here is my re-cap of factors that have shaped the economy and property market over the last two years and my predictions for the near future.

At PropHero, weathering the storms – and finding the silver linings – are what we’re all about. And it’s pretty clear that taking the long term view is now more important than ever.

In Australia, our resilient economy, strong labour market and signs that interest rates will peak in the not too distant future are all causes for confidence. Even more reassuring is new research showing that booms tend to be followed by periods of only slight decline rather than prolonged ones.

Covid has profoundly changed how we live and work

COVID-19 has had a profound impact on the global economy since it arrived in early 2020.

It has also radically changed how we live and work.

Commercial trading restrictions, lockdowns and other measures to reduce the spread of the virus have had an undeniably harsh impact on the retail, hospitality and leisure markets.

Money in the form of household and business income support was poured into the economy as governments grappled to do what they could to counter the alarming early effects of the pandemic. And the RBA dropped the official cash rate to 0.1% pa.

This “shot in the arm” provided a safety net for the vulnerable and boosted demand to hard-hit industries and the Australian residential property market boomed.

Construction, however, was a different story. Labour shortages and supply chain bottlenecks have massively pushed up construction costs as well as the day-to-day cost of living.

Added to the mix have been multiple adverse weather events, escalating geo-political instabilities and commodity price hikes.

This has created the perfect storm for ongoing uncertainty.

Economic policy is playing catch up and a recession is on the horizon

The RBA is now fighting inflation by hiking interest rates.

In fact, globally, central banks have raised interest rates in an effort to slow down investments, dampen demand and decrease consumption. After putting the brakes on in this way, it’s likely that many countries will enter recession in the short term and that, as a result, demand will go down.

Weather events allowing, production is expected to increase, with supply chains getting back to 100% capacity. An early sign that this is happening is the significant drop in shipment costs over the past few weeks. This means inflation should slow down within the next six months.

As the anticipated correction becomes a reality, and in order to counter recession, governments will likely move to reduce interest rates (as China has done recently) and the cycle will repeat itself.

The good news? Extended property market pain is highly unlikely and most certainly not inevitable

As interest rates increase over the next six months it’s a given that property market stability will continue to take a hit.

As history has shown, however, there will come a point where the market will bottom out before buyer FOMO begins to bounce back with a vengeance. This will be driven by reduced prices, increased yields, and the eventual decrease in interest rates. It will be especially true for areas with growing demand and tight supply, especially ones where supply is restricted even further by the inflation-induced dampening of new building activity.

Domain’s chief economist has recently pointed to some of the common misconceptions behind the boom and bust mentality. And the good news is that an extended period of property market pain is certainly not inevitable.

In fact, a distinct pattern emerges when price rises and downturns are tracked over the past 30 years. It becomes clear that downturns last nine months on average and are far more short-lived than booms, which last on average two to three years.

Looking ahead to 2023

As the Domain data points out, prices are unlikely to drop to pre-pandemic levels and the current downturn will be shorter than buyers and sellers may expect.

The market began to fall in March 2022 and if we base projections on this well worn pattern, there’s a strong possibility that we could see a turnaround by the first quarter of 2023.

In fact, my prediction is even more optimistic. In 10 years from now, I believe this period will be viewed as a time where great deals are everywhere, with a number of areas outperforming the market and leading to solid long term gains.

Areas that investors should look for right now include those with:

  • A growing population
  • Low vacancy rates and limited stock being added to the market
  • Rental yields above 4.5%
  • A rise in rents.

Although Sydney and Melbourne remain challenging for investors, Brisbane, Adelaide, Perth, and Hobart have real potential.

When it comes to outperforming the market, PropHero provides the data and digital solutions that enable you to create long-term wealth and gives you the best chance of minimising your investment risks both now and in the future.

Learn more by booking a free investment consultation here.

Disclaimer
The information on this website is for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered legal practitioner or financial or investment adviser. No material contained within this website should be construed or relied upon as providing recommendations in relation to any legal or financial product. PropHero does not recommend or endorse products and does not receive remuneration based upon investment or other decisions by our email recipients, publications, newsletter or website users.

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