Is NOW The Right Time To Buy Australian Property, Or Should You WAIT?
AUSTRALIAN REAL ESTATE -BUBBLE, BOOM or CRASH ahead?
Is Now The Time to Buy? The Australian Property Centre
2021 panic buying of homes as prices skyrocket around the world…should you jump in, or wait for the downturn?
When buying land or property in Australia as a foreigner, the question arises: Can a foreigner buy property in Australia?
And if so, is now the time to buy property in Australia?
To understand what is happening to Australian house prices, it is important not to view Australia in isolation, but to also understand the global trends currently affecting world real estate.
The pandemic has affected every person in the world and has affected every business and industry, and real estate is no exception.
IS NOW THE RIGHT TIME TO ENTER THE AUSTRALIAN PROPERTY MARKET?
GET YOUR HANDS ON THE MOST COMPREHENSIVE FREE REPORT AVAILABLE. UPDATED IN 2021 FOR THE CORONA VIRUS AND THE NEW TAX AND FINANCE CHANGES.
A friendly reception, amazing lifestyle, strong economy and fantastic job opportunities await anyone wishing to buy property in Australia, but anyone considering taking the leap and buying property in Australia has to do their homework and buy at the right time.
This poses the question "When IS the Right time?".
Here, at "The Australian Property Centre", we have painstakingly produced the ULTIMATE Buyer's Report that explains everything you'll need to know about the current property market in Australia.
The report explains current market trends and conditions; current property prices; population growth; oversupply; the potential for a "bubble"; and many other factors likely to effect the Australian property market over the next 2-5 years.
In addition, the all important 'trend lines' for Sydney, Melbourne, Brisbane and Perth up to 2021 are included, which provide valuable insights as to timing a purchase.
This report also includes the Covid effect on the property market in Australia that affects ALL investors, home buyers, and future migrants.
You can have this essential report for FREE!
Simply complete the form on this page and you'll be redirected to your report. And remember; all the advice, help and tips The Australian Property Centre gives on our website is always completely free.
Property is probably the biggest business in the world. By one estimate, construction, the buying, selling, and renting of properties, and the imputed benefits to owner-occupier's account for around 15% of rich countries' GDP.
Property also makes up around two-thirds of the tangible capital stock in most economies. Most important of all, property is by far the world's biggest single asset class. Investors have much more money tied up in property than in shares or bonds.
What is happening in Australia is also happening in Canada, the UK, the US, and many other western and developed countries.
Pandemic fuels broadest global house price boom in two decades
In 2020 analysts and economists were expecting terrible things for the global real estate markets.
As we all know, the coronavirus pandemic had sent large parts of the world into lockdown, shutting businesses, costing millions of jobs, and putting the housing market into a deep freeze.
The number of people asking lenders for more time on their mortgage payments surged as the global recession hit.
The fear was that house prices would collapse.
An increase in bankruptcies and unemployment would squeeze disposable incomes and make it difficult for highly indebted homeowners to keep up with their mortgages.
"Actually, none of that happened," said Kate Everett-Allen the head of international residential research at consultancy Knight Frank..
In fact, it proved to be the opposite.
The Covid effect
In an unexpected twist, the pandemic has benefited house prices.
“There are many reasons, but a contributory factor to rising house prices globally has been the mass reassessment of housing needs in the wake of the pandemic, whether that's been buyers seeking home offices, gardens or just to be closer to wide-open spaces,” added Kate Everett-Alle.
With so many people having to work from home, they realised their home is their sanctuary, and they needed more or bigger space, home offices, and better design.
Governments around the world helped homeowners by temporarily banning repossessions and providing trillions of dollars of support for workers and businesses.
Interest rate cuts kept mortgage repayments affordable in many places, while temporary reductions to purchase taxes in some markets spurred home buying.
A freeze on repayments greatly helped many. Apartment complexes like Build to Rent projects around the world have seen huge increases in occupancy, with younger tenants especially appreciating the social interaction such complexes bring, compared to standard apartment buildings.
Across advanced economies, interest rates began to fall sharply during the global financial crisis and have remained at low levels through the 2010s. These measures cushioned the housing market from the coronavirus recession. But the pandemic itself has actually turbocharged prices. "If you lock up the vast majority of the population for months, they [rapidly reassess] what they want from their homes," said Richard Donnell, research director at UK property platform Zoopla.
As people were forced to transform houses into offices and classrooms, it didn't take long for a "race for space" to take hold.
Globally, many house markets appear to be on a non-stop upward march.
Annual house price growth across the OECD group of rich nations hit 9.4 percent — its fastest pace for 30 years — in the first quarter of 2021, as economies rebounded from severe coronavirus-triggered recessions.
Soaring real estate prices can have serious economic consequences, but the market incentives that drove them there aren’t likely to go away overnight – even when the pandemic panic subsides.
Why are Australian house prices rising?
Like many other countries, extremely accommodating financial conditions with record-low interest rates has helped boost house prices in Australia at an unusually fast pace during a period of weak economic activity.
Low borrowing costs make house purchases in Australia more affordable relative to rent and to other investments.
With Australian mortgage rates at all-time record lows, more people decided to move house, upgrade to a bigger property, or move to quieter places, following long hours spent at home during the lockdown.
Low interest rates, government grants, Covid working-from-home arrangements, and solid job security have translated to strong demand for homes.
The Australian Reserve Bank has also indicated that rates are unlikely to rise until 2024, further underpinning the desire to borrow to buy property.
At the same time that demand for homes has been super-strong, Covid-19 has been a key factor restricting the supply of homes on the market in Sydney, Melbourne Brisbane and even Perth.
The situation has been amplified by lack of new supply and increasing building prices.
Even the much-maligned high-rise apartment market in Australia has seen plummeting new permits and building approvals.
This sector, much against common belief, is the smallest segment of Australian housing.
Many Australians have moved out of the cities and suburbs to coastal and country towns, causing prices to escalate and rental property to have full occupancy.
Some wealthy individuals in Australia have fled the capital cities for larger country homes with more outdoor space in the anticipation that they won't need to commute into their city offices as much even after the pandemic ends.
In addition, many households, particularly those that were already better off, are financially in a better position than they were before the pandemic hit, since they've spent less on travel (both overseas and interstate), entertaining, vacations and eating out, and have accumulated large savings since the start of the pandemic.
A lot of this additional income has been allocated to the housing market.
People rushed into property markets that were already busy with pent-up demand from households that had postponed moves.
And as prices started rising for homes in Australia, even more money flowed in.
Potential vendors have been reluctant to list properties until there is greater certainty on lockdowns, health orders, and general mobility restrictions.
The end result is that home prices have been soaring – recording the fastest annual growth rate in 32 years.
One buyer our company knows used to take his family to Europe each summer. With the borders closed, he kept his luxury Sydney mansion, and purchased a multimillion-dollar country spread, and had the family stay over the summer instead.
Border closures and international tourists and students
Before COVID-19, education-related travel services generated $37.6 billion per year and 8% of all export earnings. It is in fourth position after iron ore, coal, and natural gas.
Education exports have risen sharply over the past decade, with 15.2% growth over the past five years.
The demand for education will remain in the post-COVID-19 world.
Inbound arrivals, tourists, business travellers, and students, collapsed to virtually zero in 2020-2021.
The focus on Australian tourism is usually around international arrivals.
But, domestic tourism (Australians travelling between and within states) actually makes up a larger share of the economy.
Domestic tourism is worth just over 4% of GDP, well above the 1.3% of GDP that international tourists spend in Australia.
Australians spent $58.3 billion in 2018–19 visiting other countries, while visitors spent $39.1 billion in Australia.
So, the ban on international travel but a return to domestic travel within Australia actually boosted the Australian economy, especially over the short term.
According to the International Air Travel Association (IATA) travellers survey, 58% of respondents stated they would currently avoid air travel, and 33% would avoid travel in the future due to COVID-19-related health concerns.
66% indicated they would travel less for leisure and business post-pandemic.
Furthermore, 64% of respondents indicated they would postpone travel until economic and border conditions improve.
Even though travel restrictions are relaxing, it will take an extended period to restore consumer confidence in air travel and pre-crisis spending patterns.
All of this indicates Australians are much more likely to stay (and spend) within Australia over the next few years.
This will benefit the housing market.
What about the soaring prices in Australia? Surely, NOW is NOT the time to buy in Australia?
Well, if it makes you feel better to believe Australia’s market is a bubble, go ahead and believe it.
Many others do.
Back in 2003 The Economist magazine said house prices in Australia would ”fall by 30% or more in a year or two.”
Many of this company’s clients rang us to ask if they should sell their Australian properties.
They were spooked.
Many others held off buying to “watch what happens”.
An expensive mistake.
In fact, the opposite happened. Prices rose and were up 26% averaged over all the capital cities by 2007. (Australian Bureau of Statistics)
(Given the Economist said prices would fall 30% and they rose 26% it would be fair to say they were wrong by a massive 56%. Hopefully, you can see why you need to be very wary of following the advice given out by the media that needs to sell subscriptions/papers/magazines/ web views, etc.)
In 2014, the Rich Dad Poor Dad author Robert Kiyosaki, who has also written Rich Dad's Prophecy, warned investors “not to touch Australian real estate”, saying the Australian property market was a bubble about to burst.
Again, prices rose by 16% over the next two years, and are up 50% to June 2021.
In 2017, “BUBBLE” was how the secretaries to the Treasury and the Australian Securities and Investments Commission have described it. A former head of the Liberal party said it was a “crisis”.
Since then prices have risen 16%.
So what did all these calls for doomsday accomplish? Absolutely nothing.
Australian home prices have marched relentlessly higher.
So when potential buyers hold back because they do not want to pay the 7% or 8% Foreign Buyers Tax, they could be making a rather expensive mistake.
So assuming you have sought out the right research, and have the deposit and access to financing, perhaps it would be more correct to say the biggest mistake you can make is not to own any property at all.
Have Australian real estate prices surged upward at an unsustainable pace in 2020 and 2021?
Are lofty prices leaving the economy vulnerable to future threats, such as unexpected interest rate increases and other possible shocks?
But is Australia’s housing market an epic bubble on the verge of popping?
Economists usually define a bubble as being created by a surge in asset prices that is driven by exuberant market behavior. During a bubble, assets typically trade at a price, or within a price range, that greatly exceeds the asset's intrinsic value (the price does not align with the fundamentals of the asset).
A bubble, in other words, is doomed to collapse under the weight of its own irrationality.
By that standard, Australia’s real estate market looks less bubble-like than exuberant. Or maybe even catch-up.
Beneath the frenetic behavior of the past few years is a market that is reacting predictably to unusual stimulus and is actually catching up after years of underperformance. (See the trend lines graphs later in this report)
Real estate gains follow stock crashes.
This is the sixth or seventh stock market crash or bear market in stocks in less than 10 years. After every major stock crash in Australia's history, the "safe havens" have drawn huge amounts of investment particularly in gold and real estate.
The biggest Dow Jones single-day falls in history were recorded in:
Oct 1987 (Sydney house prices rose 98% between October 1987 and October 1991) (Melbourne +55%)
Oct 1997 (Sydney house prices rose 31% between October 1997 and October 2000) (Melbourne +33%)
Sept 1998 (Sydney house prices rose 50% between September 1998 and Sept 2001) (Melbourne +50%)
April 2000 (Sydney house prices rose 66% between April 2000 and April 2003) (Melbourne +50%)
Sept 2001 (Sydney house prices rose 48% between September 2001 and Sept 2004) (Melbourne +33%)
Sept 2008 (Sydney house prices rose 30% between September 2008 and Sept 2013) (Melbourne +23%)
March 2020 saw the four biggest single day losses in stocks seen since 1987. National property prices across the eight capital cities across Australia have risen 30% since then (to June 2021).
Economic resilience provides a safe, low-risk environment for international investors.
Australia is increasingly seen as a “safe haven” so it is a near certainty that high levels of migration shall continue well into the future after Covid.
Investors have a unique opportunity to take advantage of this trend by investing in and providing rental accommodation.
On 26 October 2021 Australia’s population had reached
To accommodate its intake of foreign migrants, Australia must build a city roughly the size of Britain’s Birmingham every five years.
Australian property is long proven as a safe, secure, and profitable investment.
Use the trend lines for guidance. Many people still remain unsure as to the correct timing to enter the Australian Real Estate market. It can be useful to examine the TREND LINES to get an idea of where each Australian city stands and to also understand why it is not a “bubble” about to burst.
We have put together these graphs from data available from the Australian Bureau of Statistics, and the index shown represents all properties (houses, apartments, townhouses) to get a more accurate representation of the overall trends, rather than just showing one segment of the market, like houses only.
Also, these figures do not include new builds, so as to not distort the data, as new builds coming to market are always more expensive than those on the resale market, and thus can distort the data upwards if a lot of new builds come on - so they have been excluded.
It's also important to remember that the trend line changes over time to reflect the latest figures inputted. However, we have been following the trend lines for decades, and seldom found they let us down.
You could do worse than just invest according to the trend lines.
Sydney our biggest city, seems to accurately follow the long-term trend lines.
In 2003-2004, the market in Sydney was well above trend.
The correction then occurred to bring Sydney back to trend.
Sydney remained under trend until 2014-2015 when it started its ‘catch-up’.
This has been overlooked by most observers. The strong gains that started in 2014 were in fact just a catch-up for an underperforming market.
By 2018, Sydney had overshot the trend line and then slowed.
The 2020- 2021 gains can also be clearly seen, meaning that as at June 2021, Sydney has gone up above the trend line again, however, further growth might be expected given the strength of the market before, inevitably, Sydney will be too far ahead of trend, and will come back.
Those studying the cycle suggest this is likely around 2025 to 2026 as this current upswing is likely to eclipse previous highs.
And sometimes they just stop and wait.
The “secret” to why prices are unlikely to crash
In Australia, around 66% of all properties are purchased by “owners”, not investors. This protects the downside.
That is, people intending to live in them.
NOT buying for investment or speculation.
Not buying to rent them out. But for their own use.
This is the secret ingredient for investment success and overlooked by nearly all novice investors in Australia.
Because, while no one can guarantee prices will rise, these “owner occupiers” protect the downside risk.
That is, in a downturn, they do not rush to sell, as this is their own “home”. This provides a natural “buffer” against panic selling, such as occurs in the stock market.
And has been one of the “secrets” as to why the Australian housing market has not collapsed during the various financial crises.
This also means investors have a huge pool of tenants to select from.
It is seldom hard to find a tenant.
However, Covid has taught us that location is critical when selecting a rental property for investment.
Locations, and /or properties that rely on students and/ or tourists and holiday-makers were badly hit during the pandemic with high vacancy.
However, most properties in prime locations targeting local residents as full-time tenants maintained high rental occupancy rates.
BUT, it gets even better.
Just under a THIRD (31%) of all property owners in Australia do not have a mortgage. That is, they simply do not care whether interest rates go up or down, they have no repayments to make.
For them to panic and sell would be unheard of.
In addition, the Australian banks have always tried to keep borrowing levels on property between 60% to 80% as a general rule, creating a built-in “buffer.”
The biggest mistake many people will make this time around is to be so concerned about making a “wrong” decision as to timing, they will end up not owning any property at all, and will miss not only rentals rising to levels we have never seen before in Australia, but also this current great property boom.
- Choose the right property, in the right location.
- Choose the correct mortgage to match your needs.
- Select the ideal mix between the rentability of a property, and the potential for capital growth.
- Use some leverage to maximise returns.
- Don’t always select somewhere “you could live in yourself.” Your tenants may well have different ideas. Maximize rental returns.
- Seek professional help for solicitors, valuers, accountants, mortgage brokers, and buyers' agents.
Make prudent decisions based on facts and research rather than friends' opinions. Take the long-term view, buy to hold rather than buy to sell.
Remember that each Australian City operates on a DIFFERENT property timing cycle, so it is impossible to say the “market is down” OR “the market is up” as it depends upon WHERE you are talking about.
Many of these are wealthy business or professional people. BUT IN ANY EVENT, THEY ALL REQUIRE HOUSING.
But where will they all live?
YOU may as well be the one to supply their rental accommodation.
The data is indisputable. Over the last 35 years, the market has continued to climb higher. And that’s despite crashes, wars, and pandemics.
By taking the long-term position, it can mean almost guaranteed wealth.
Security goes hand in hand with the patient and long-sighted pursuit of accumulated wealth. It is an endeavour that cannot be hurried without risk.
While the strong increases in home prices in Australia have boosted wealth for homeowners and home buyers, it has also meant weakening housing affordability for those looking to buy.
In the current environment, the risks are conveyed more by the former rather than the latter.
In short, higher household debt increases the risk to the economy, especially through a loss of work and therefore income.
And when eventually rates rise, the lift in rates could cause more borrowers into stress, restraining spending and overall economic growth.
Mortgage rates will remain structurally low and supportive of market growth for the next couple of years.
New supply of apartments is falling.
Rental vacancy rates across Australia are at a decade low, at just 1.7% in September 2021, with tens of thousands of migrants, students and returning Aussie still to arrive as at the time of this report.
Expect rental vacancy rates to plummet, and rents to rise.
Build to Rent will alleviate some of this demand, but by no means all.
In summary, don't expect the Australian house boom to bust any time soon.
For a correction to occur, you need a catalyst.
What could that catalyst be? The most obvious threat would be a sudden rise in interest rates.
Others argue the housing market’s first big test will come when the economy begins to reopen.
What happens next for home prices will hinge on several factors, including interest rates, how quickly immigration bounces back and how rapidly the economy recovers from the pandemic lockdowns.
But even the big recent gains mean even double-digit home price correction would simply reverse the advance of the past few months, punishing recent buyers but not making homes that much more affordable.
Doomsayers can imagine a fall in prices that would be enormous by historical standards and reverse much of the gains of recent months, but that would still leave home prices really high, and substantially up from a decade ago.
Even though trade and investment are set to contract sharply over the coming years, there is an opportunity for Australia to capitalise on the safe-haven effect.
In times of global uncertainty, buyers and investors are looking for safety and security.
Due to the effective management of the COVID-19 risk, Australia has maintained industry supply chains and a stable economy.
However, we may be able to also draw lessons from history.
The 1920s began with the world recovering from a war, the Spanish flu pandemic, and a depression.
However, it later emerged as a time of prosperity, rising incomes, and innovation, with antibiotics, electric light telephones, and radio coming to consumers and making life profoundly different to a decade earlier.
The 2020s might see similar changes with quantum computing, energy storage, AI, blockchain, and molecular biology.
Businesses lost during the carnage resurface or are replaced by leaner, more targeted, more automated, more digitally connected and far more cautious enterprises with far stronger balance sheets.
Emerging technologies today have the potential to boost economic and productivity growth in Australia and internationally.
A generation of Australians will train, work, and live in an economy primarily concerned with rebuilding and recovering from the COVID-19 shock.
This will affect their future housing choices.
Australia can achieve the roaring twenties again in the 2020s.
Australia has never seen anything like this as it missed SARS, and the GFC barely caused the country to blink.
But people NEED shelter. They NEED housing. Migration will continue.
The population will increase.
As infrastructure comes online, as businesses re-engage workers, as consumers breathe a palpable sigh of relief that the lockdowns are over, spending will recover.
And in that rebuilding Australia, remote and cut off from the world by the tyranny of distance, is then viewed warmly as a place of safety, as a place of prosperity that is hygienically managed.
Australia has ended up performing well in terms of infections and deaths in blunt comparison with many other nations, so it is appearing more attractive and will continue to attract business and skilled (and ambitious) migrants, perhaps in record numbers, all of whom will require housing, whether to rent or buy.
Pre-covid it was estimated that around 1 million Aussies were working and living outside of Australia. By mid 2021 around half of them had returned, further putting pressure on prices.
Whether Australians, at least in the short term, will want to live overseas again in such numbers remains to be seen.
Migration will continue, perhaps at unprecedented levels, just when a shortage of apartment stock hits.
This is highly likely to reduce rental vacancy rates even more, and push up rents, which will increase yields and make apartment investing become popular again going forward.
The house markets around the Australian cities are on different property cycles, however it is likely there are no headwinds to stop continuing growth, albeit slower than we have seen over the past two years, at least up to 2026, unless interest rates rise significantly.
Or the banks make getting a mortgage impossible- highly unlikely given how important mortgages are to their bottom lines.
This means a lot of new housing is will be required – and not just for the lower income earners being priced out of the housing market, but for migrants, first time buyers, students - to add to the current housing options, rent or buy, across the economic spectrum.
Which also helps explain the new Build to Rent boom about to happen to Australia.
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