Property Investment Planning for 2016 using 5 lessons from 2015

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Let’s take a retrospective look at the last 12 months and see what lessons we have learnt that may assist us with our property investing planning for 2016

Interest Rates have a significant impact on the property market

Although Interest rates dropped throughout the year and remain at historic lows, when the banks took it upon themselves  to increase rates on investment loans at the back end of 2015, it had an immediate impact on the property market. Auction clearance rates dropped almost overnight and it took the sting out of the property market. The US recently raised Interest rates with the UK to follow shortly so it could be argued that we have already reached the bottom of the interest rate cycle and we are on the upward trend.

Banks have the power to control the property market

When the Banks made the decision to increase rates on some of their loan products we saw the impact this had on the psychic of the property investor, however they also pull the strings on how easy it is for property investors to access finance. In 2015 we saw them tighten the lending criteria increasing deposit requirements on some loans from 10%  to 20% and in some cases more,  which in itself is good governance as it provides for a higher buffer in the event of a property downturn. With so many ‘off the plan’ sales settling in the next couple of years  and with a possibility of lower prices on completion, Banks are protecting the consumer and themselves at the same time. With the Global Financial Crisis still fresh in lenders minds and if 2015 is a guide, we may see further tightening of bank policy on lending.

Sydney and Melbourne are still the Markets to invest long term but Brisbane and Perth  are worth a look

In 2015 both Sydney and Melbourne property enjoyed a strong year from a capital growth perspective, reinforcing the fact that these are the two standout Markets for long term property investment in Australia. There is significant development happening in these cities over the coming years which could see a short term over supply of apartment type style housing coming onto the market which in turn may have a short term impact on prices. With Sydney and Melbourne being at the top of the cycle there are opportunities in other markets and if looking for a lower entry point and good capital growth I would  consider looking at markets at different stages of the cycle with room for improvement , North of the Border of NSW and Western Australia look positive. The under performing Brisbane market failed to deliver in 2015, and with affordability a growing issue the investor/home owner could do far worse than look at opportunities in Brisbane. The weather, lifestyle and economic opportunities of Brisbane will see it prosper, younger people from the south may see it as an affordable alternative and a great place to raise their families. Brisbane’s property market is expected to show an improvement in the new year, with low-priced outer suburbs offering some light in what was a mostly subdued local market in 2015. Domain’s new housing prospect report for 2016 reveals the Brisbane market is expected to rise, with growth predicted to be about 3 to 4 per cent. Perth had the worst performing property market out of any Australian capital city in 2015 and Perth housing is the most affordable since 2004. Perth experienced the biggest fall in prices this year- with house prices dropping 6.1 per cent or $35,000 to $515,000. Wrapping up the final results for 2015, the report also showed that Perth median apartment prices fell by 3.4 per cent this year to $415,000.

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2015 showed us that Sydney and Melbourne out performed all other markets but arguably are at the top of the cycle and other markets at different stages of the cycle now become more attractive .

The Government  really doesn’t want to tinker with Negative gearing but?

What is the government going to do about the Budget Deficit, raise taxes, increase the GST, change  policy? Currently 1.2 million people negatively gear and most of these are middle class Australians. Australian Tax Office statistics show negatively geared property investors claim over $13 billion in losses and the average loss per negatively geared investor is over  $11,000, but this loss doubles for those earning more than $180,000 to over  $24,000. Previous governments have ‘huffed and puffed’ but never blown the house down when it comes to policy change in this area. However, governments also realise that anything done in this area will be highly unpopular amongst the middle class Australian voters, who will be the vast majority of people affected. I don’t believe that they really know how these changes will impact  the property market, so their attitude in the past has been to leave well enough alone, but this Malcolm Turnbull led government facing a Budget Deficit blowout had expressed in 2015 the need to review policy, and may have very little choice but to tinker with negative gearing in 2016.
The changing landscapes of Australia and property

Australia by world standards is still a small country. According to Wikipedia, in 2015 the  population clicked to just over 24,000,000 and has fewer than three persons per square kilometer of total land area, however with 89.01% of its population living in urban areas, Australia is one of the world’s most urbanised countries. The life expectancy of Australians in 1999–2001 was 79.7 years, among the highest in the world. Population growth rates as at the end of September 2012 was 1.7% and the population of Australia is projected to increase to between 36.8 million and 48.3 million by 2061. In 2015 the cities of  Sydney and Melbourne were compared with other large cities of the world like New York, Paris and London. We have seen a surge of new high density high rise development in our cities over the last year and this we will need to continue to accommodate our growing population. The great Australian dream of owning a quarter acre block is not quite over yet but we will see a change of demographics over the coming decades to adjusting to high density apartment style living.

Related:  Property Market Today: Cashed-Up Buyers in for a Treat

Have a very healthy and happy 2016.

David Naylor

Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs. Click for more detail regarding this disclaimer.

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