The property market is reaching an interesting point in time and investors and homebuyers need to pay attention.
Over the past few weeks, as a buyers agency we’ve been hearing plenty of positive stories about just how strong the property market has been in the past 12 months.
The latest CoreLogic data is showing national property prices are up by 20.3% in the last 12 months, while Sydney has been even stronger growing at 23.6% in that same period of time.
If we look a little deeper we can see that houses have outperformed in Sydney growing by 28.9% while units have been slightly weaker with just 11.6% growth.
On the surface, this is all very positive news and given where we were in terms of sentiment in early 2020, the market has shown just how resilient it really is.
However, markets move in cycles and we know that periods of strong growth are often followed by periods where prices slow down.
In the last few weeks, we’ve also started to hear more talk from regulators that they are wanting to clamp down on credit conditions and this is something many of us would have experienced the last time around in 2017 when APRA lifted their assessment rates meaning borrowers could access less money.
At the same time, over in New Zealand, the RBNZ lifted their official cash rate, after house prices surged by nearly 30% in 12 months. Suggesting the RBA could well follow suit.
The important take away for property investors is that while the market is strong right now, it’s more important than ever to be investing in areas that are strong no matter what the underlying economic conditions might be.
For me, that means investing in locations that have long term track records of growth year in and year out. The best example is clearly the Eastern suburbs of Sydney.
Over a long period of time, the Eastern Suburbs and places like Bondi, Double Bay and Bronte, just to name a few have seen strong growth no matter what has been going on in the world.
There have been pandemics, Royal Commissions, federal elections, state elections you name it and these blue-chip locations have continued to perform.
The reason for this long term outperformance is simple. These locations are highly desirable and there are always buyers lined up to try and get into these suburbs for all the great lifestyle and amenities they have to offer. Couple that with very low supply and you can easily see why places like Bondi grow virtually each and every year despite what might be going on in the world or the economy.
If your goal is to continue to expand your property portfolio, the most effective way to do that is to identify properties that will see capital growth. If you are buying into a location that doesn’t see any upside for five years, you’ve not only missed out on the growth in that property, but also the lost opportunity cost of being able to expand your property portfolio.
While the market has been strong around the country, it’s always vital to take into account the potential for changing market conditions.
Coming from the best buyers agent in Brisbane, I would much prefer to be investing in locations with a proven track record of growth than gambling in the hopes that the trend might continue in a far less desirable location.