17 Jun Why now is the right time to invest
You may have been reading about the price drop in residential property over the last 12 months. All indications are showing this decline has now stopped following the Federal election result and the RBA interest rate reduction. Together these events have triggered increased market activity and confidence.
Auction clearance rates were languishing around 51% – 54% pre-election but since 18th May they have rebounded to 60% – 64%. While ALP’s proposed changes to property tax (negative gearing and capital gains) were targeted at investors the sentiment shift was impacting all buyers.
Access to finance remains the bigger issue impacting the market following the Royal Commission into misconduct by financial institutions and APRA’s regulatory response. This has led banks to amend their responsible lending practices making it harder (and slower) to get a loan.
A decline in property values always makes buyers anxious prompting inaction until they are comfortable the adjusted values have hit “good buying” level.
The most important consideration in assessing the market is longer-term trends of supply and demand. Looking specifically at the apartment market, the price decline and buyer nervousness has meant many potential mooted apartment developments have been put on hold and will not be built for some time. Meanwhile population growth (particularly in Victoria) continues unabated at well over 100,000 per year and the State Government “Plan Melbourne” growth strategy forecasts Melbourne’s population to grow from 4.6 million to 8 million by 2050.
According to JLL research, apartment approvals as at Feb 2019 was 4,801 which is a drop of 79% year on year. Forecast completions for 2019 are 5,500 which is half the number apartments completed in 2017. It is clear apartment supply has slowed to a crawl while population growth will drive demand meaning we may well be in under-supply in 3-5 years time. Demand for housing and the need to live on transport lines or close to areas of work and play will see many people wanting to live in inner Melbourne suburbs.
The current market softness makes this a very good time to buy an investment property. With adjusted values the annual return on many apartments is now around 5% gross which is about double the rate most banks are offering on deposits and this is before capital growth and the taxation benefits.
It is obviously important to purchase the right apartment and Wood Property Partners can assist you to find one that suits your budget and preference.