Why 2018 will be a year of market transition
13 August 2018
As we head into 2018, I believe this year will be one of market transition across the country.
It will also be a year of finance, with those who can secure it likely to be the ultimate winners. It’s no great surprise that Sydney and Melbourne are transitioning out of the strong price growth they’ve experienced over recent years.
However, that doesn’t necessarily mean they’re going backwards. Instead, their growth may fall back to one or two per cent annually. That market transition will be driven by reduced consumer confidence, which is a reflection of the price of money as well as how easy it is to secure finance. Confidence also usually wanes when the media starts speculating about softer market conditions.
It’s clear that Sydney’s market has already come off the boil and Melbourne’s is likely to follow suit but in a more moderate way.
It’s important to realise that transitions happen in both directions, with some markets slowing while others are strengthening. I believe this will certainly be the case for Brisbane, which is on track to transition to stronger market conditions.
That said, Brisbane is a city of different markets with the inner-city in the midst of it’s well-publicised new unit oversupply. It is Brisbane’s outer suburbs that represent good value and cash flow, as well as attractive lifestyle drivers, that will experience the most improvement in my opinion.
Of course, there are already increasing numbers of interstate migrants into Queensland given it’s housing affordability as well as it’s many attractive lifestyle opportunities.
SA and WA back in the game
I also believe it will be a year of positive transition for South Australia and Western Australia. South Australia always seems to lag behind other capital cities and by the time most investors realise what’s happening it’s too late. The truth is that South Australia’s transition is already happening.
In Adelaide, however, it’s only the 15-minute ring around the CBD as well as areas like Christies Beach that are worth considering. We all know WA has been woeful over recent years, but this could be the year it finally turns a corner. The State Government has been concentrating on jobs growth, with employment numbers reportedly starting to improve. If locals start spending money because they’re more confident about their livelihoods, then, that in turn will stimulate the market.
However, when I say WA, I mean Perth and select areas within the city as well. If interest rates increase, even if only by a blip, those green shoots of confidence might evaporate as fast as they appeared. Tasmania will continue to percolate until cash flow doesn’t look as attractive as other areas, such as Brisbane. I remain skeptical about Tasmania’s growth because it’s mainly being driven by investors chasing investors purely because of affordability.
Owner-occupiers aren’t the ones who are pushing up prices.
I believe it may lurch from under-supply to over-supply pretty quickly – and then you’ll probably have 10 years of no price growth at all.
A question of money
We’re now into our third calendar year of lending restrictions and I don’t believe they’re going anywhere anytime soon. Investor numbers have only recently started to slow so there will need to be more evidence before APRA loosens it’s grip on investment lending. Banks might want more flexibility but it’s unlikely to happen. So 2018 will be a year of market transition but it will also be a year of finance. The price of money remains cheap but it’s availability continues to be constrained.
That’s why I believe it will be the sophisticated investors who know which markets are transitioning to the positive – and who can secure finance – who will be the property victors by the end of the year.