The Shape of Things to Come

The Smartline Report – May 2016 Edition

The Shape of Things to Come

Michael Matusik, founder Matusik Property Insights
May 2016

The conditions for Australia’s property market are becoming increasingly challenging.

Post this cycle (2008 to 2016, but most likely 2017), Matusik Property Insights (MPI) believes the Australian real estate market is likely to slow down, possibly significantly; and in certain locations; and for certain property types – values, sales and even rents could fall, possibly substantially.

MPI’s view is that these property conditions could last for several years, maybe longer.

The reasons why are many and include:

  1. High debt levels
  2. The lessening “impulse” of interest rates
  3. Declining housing affordability
  4. Workforce and general economic restructuring
  5. Ageing and changing demographics
  6. Low inflation and possibly deflation
  7. Potential changes to property taxation
  8. Fewer fiscal government incentives

For the next year or two, MPI thinks it will be ‘business as usual’.  Politics, both here and abroad, plus the RBA’s room to further drop interest rates, is likely to keep things artificially afloat.  However, sometime in the near future this ‘pump-priming’ will stop.  The catalysts are many and will likely come from abroad and increasingly from China as its borrowing escalates, in an attempt to arrest falling economic growth.

Australia weathered the GFC because we had a financial surplus and China, at that time, was growing strongly. This time around however, we have less to fall back on.  The eight point list above illustrates how brittle, economically and even socially, we have become.

Soon, and sooner than many realise, MPI believes that many Australians will be forced to compromise on their housing. If this proves to be correct, affordable compact housing, especially in major urban areas, should better weather the storm.

Similarly, in regional locations and outer suburbs, properties with dual (or more) incomes look more promising rather than traditional detached housing.

More people are sharing accommodation and a key to getting a better rental yield is to hold property that facilitates sharing and/or attracts a higher paying tenant. The astute passive investor will buy strategically for a rental premium and not just buy a common property in anticipation of generic price growth.  They will also buy a property with owner-resident resale appeal.

For the more active, land banking (at the right price) for future redevelopment or substantial renovation should also pay dividends.  In addition, some may opt to invest into those markets at the bottom of their property cycle – buying effectively below replacement cost – and holding for the long term.

MICHAEL MATUSIK

Michael Matusik has over 25 years of experience in real estate analysis, assistance and advice.  He is the founder of Matusik Property Insights, a Brisbane-based property consultancy firm.  You can sign up for Michael’s free weekly updates at www.matusik.com.au

www.smartline.com.au

Please note that information in this publication is subject to change without notice. Smartline assumes no responsibility for any errors, omissions or mistakes in this document. © Smartline Home Loans P/L 1999 – 2015. Australian Credit Licence Number 385325

Share on:

DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.