Is the curtain falling on the property boom?

    Experts are predicting that in only two years first home buyers will be getting revenge on their currently cashed-up SMSF and investor competitors as housing prices cool.

    According to the Financial Review, the consensus amongst property experts, CoreLogic RP Data and Domain Group, is that markets, particularly Sydney and Melbourne, are set to ease across 2016.[1]  That’s a frightening thought for those buying property investments now to fund their retirement in the future.

    Investors retreat from Sydney

    In 2015, it was difficult to move in Sydney without running into an investor out-bidding their first homebuyer counterpart to snap up a property at auction.  But by the tail end of the year, this was already starting to change.  ABS November Key Figures showed that owner occupied housing commitments rose 1.7% while investment housing commitments fell 2.9%.[2]

    This trend contributed to decreasing house prices over the December quarter. After three years of soaring property prices, average house prices in Sydney dropped by three percent – the largest quarterly drop on record. Apartment prices also fell 2.8 per cent over the December quarter – the first fall since March 2013.  Domain Group senior economist, Andrew Wilson, has gone even further, predicting that median house prices will fall below the million dollar mark by mid-2016.[3]

    The devil is in the detail

    In July 2015, ABC News quoted BIS Shrapnel associate director, Kim Hawtrey as saying, “The record-breaking home building boom that we’ve been seeing, we see it peaking in 2015, and some key markets are set to move into oversupply.”[4]

    And that is where the assertion that Australian property is crashing falls over – some markets are showing signs of lower prices and oversupply, but not all.

    The Sunshine State begins to shine

    Property experts remain optimistic about the South-East Queensland property market in 2016, citing factors such as a low dollar providing improved attention from overseas, and the gap between house prices in Sydney and Brisbane delivering investors from south of the Tweed.

    Overall, the South-East Queensland housing market demonstrated stability in 2015, with consistent sales activity recorded over the period. The rate of annual growth has rebounded over the December quarter with the median house price increasing by 1.5 per cent to reach $511,361– up on the 0.7 per cent recorded over the previous quarter and the highest result for the year.[5]

    While the average Sydney house price dropped at the same time Brisbane prices increased, there is still a large gap between median house prices in the two capitals.  In November 2015, CoreLogicRP Data recorded the gap at $431,500.[6] This gap has been pivotal in creating new market energy in South East Queensland.

    Australian real estate expert, John McGrath, believes that as a result of this gap southern investors are now migrating across the Tweed.  “We are now seeing a steady flow of Sydney and Melbourne buyers heading north. Southern investors are chasing capital growth and the higher yields of the major capital cities, while young families are seeking affordability and lifestyle,” he stated.[7]

    Chinese investors are also playing a key role in South-East Queensland real estate.  Having driven the Sydney and Melbourne booms, these investors are now looking for the greater yields offered by the Sunshine state. Indeed, Chinese buyer interest in property in South-East Queensland jumped in 2015 – soaring as much as 1,120%.[8]

    According to Juwai data, in 2015, the Chinese Yuan demonstrated a 25% increase in buying power over the Australian dollar, a driving factor in the burgeoning Chinese interest in Australian property. Co-CEO of Juwai.com, Simon Henry stated, “Queensland cities have not been the most popular with Chinese buyers over the past five years, but they are growing quickly. The Gold Coast is doing particularly well this year, especially as buyer interest temporarily reached a low point in 2014.”[9]

    Construction on the long-awaited $1 billion Jewel hotel and apartment project at Broadbeach by its Chinese owners began in March 2015, and non-stop flights from the Gold Coast to China have now commenced.  Both of these factors will also focus Chinese attention on South-East Queensland.

    Overall, experts remain optimistic about the South-East Queensland property market in 2016, stating that once state economic conditions improve and Sydney slows further, the South-East Queensland property market will be ready to roar.[10]

    Take advantage of the boom

    One way to take advantage of the potential in the South-East Queensland property market, without dipping too far into your capital, is to participate in a Mortgage Investment secured by a registered mortgage over a property in the area.

    Mortgage Investments are typically a shorter-term investment as opposed to directly investing in property, providing investors with greater liquidity and flexibility.  Indeed, the AIA recommends a time frame of between one and three years for a mortgage investment, compared to a minimum timeframe of seven years for a property.[11]

    Trilogy Funds Management offers investors access to both syndicated and pooled mortgage trusts, providing investors with the opportunity to choose their risk level and return. Find out more at www.trilogyfunds.com.au/aia

     

    Disclaimer: While every effort is made to provide accurate and complete information, Trilogy Funds Management Limited does not warrant or represent that the information in this article is free from errors or omissions or is suitable for your intended use. Subject to any terms implied by law and which cannot be excluded, Trilogy Funds Management Limited accepts no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as a result of any error, omissions or misrepresentation in information. Note: All figures are in Australian dollars unless otherwise indicated. This information is issued by Trilogy Funds Management Limited (AFSL 261425) and provides general information only. It does not provide financial product advice nor is it an offer of securities. Applications may only be accepted by completing the applicable application accompanying the relevant PDS. If you require personal advice on the suitability or other aspect of this investment, consult a licensed adviser, who will conduct an analysis based on your circumstances. Past performance is not a reliable indicator of future performance.

    [1] Domain Group, House Market Report December 2015 Quarter, January 2016

    [2] Australian Bureau of Statistics, November Key Figures, December 2015

    [3] Domain Group, House Market Report December 2015 Quarter,, January 2016

    [4] ABC News, Australia set for housing oversupply by 2018, July 2015

    [5]Domain Group, House Market Report December 2015 Quarter, January 2016

    [6] CoreLogic RP Data, CoreLogic’s end of year wrap up, December 2015

    [7] switzer.com.au, The experts: Sunshine state property market snapshot , October 2015

    [8] https://list.juwai.com, Queensland is the new hot spot for Chinese buyers, July 2015

    [9] https://list.juwai.com, Queensland is the new hot spot for Chinese buyers, July 2015

    [10] switzer.com.au, The experts: Sunshine state property market snapshot , October 2015

    [11] Australian Investors Association, www.investors.asn.au/education/investment-basics/asset-classes/, January 2016

    Leave a Reply

    Your email address will not be published. Required fields are marked *