According to the Australian Bureau of Statistics (ABS 3131.0 Dec 2018), the three major states of Australia being Sydney, Melbourne and Brisbane are witnessing over 300,000 new residents from overseas each year.
This increasing population means that we need more property to house people. In view of the current economical commentary, there has been negative sentiment towards the property market. Some forecasting flat returns in 2019, while some predicting declines.
One aspect that will dictate property prices is the trade-off between supply and demand. Demand is obviously in excess of 300,000 per year with the rising population, but supply is significantly down. According to the Australian Bureau of Statistics (ABS 5609.0 Dec 2018 and 8731.0 Jan 2019), housing finance fell 15% and new dwelling approvals dropped a significant 30% in the last year. This is resulting into a strong shortage of rental accommodation. Property investors are the major contributor to supplying rental accommodation. While finance remains tight, investors will be restricted to buy. If this is the case, the supply trend will continue to reduce the availability of rental properties.
If lending doesn’t change in the near future, we can start anticipating rental yields to increase. Looking at the current rental yields its notably lower in recent years, particularly in Sydney and Melbourne. Rental growth often trends behind capital or price growth, but they often align with each other when price growth ceases to increase. In 2019, we have seen price growth stagnate. This will influence rental growth, particularly more so in inner-city suburbs.
While finance remains difficult to obtain and the population continues to increase in Sydney and Melbourne, we will see more residents rent over buying due to affordability. If property prices drop, it’s not likely helpful for buying investors if they can’t obtain finance.
The year 2019, isn’t doom or gloom. If you are in a financial situation to purchase a property, you should most certainly consider the opportunity as other find it difficult to do so. Inner suburbans area within 10-15kms of Melbourne already attract a good rental yield. In 2019, investors will experience better rental returns over price growth. If our prediction is correct, rental yields will increase allowing investors to maintain a more cash neutral strategy over negative gearing. Something that will help investors retain a good investment portfolio.
Both income and growth contribute to a successful investment portfolio. Obtain advice, buy and hold for the long term.
March 2019
