Are you a homeowner living in Australia and looking to sell your home? Or maybe you are an Australian investor interested in the real estate market?
If you’re unfamiliar or new to the Australian property market, there are several important facts that you should be aware of. Keep reading for 7 facts now.
The Australian property market has been slowly growing with an increase of 4.65 percent in the nation’s eight major cities in 2016. If you want to invest in property, you should consider the seven facts below about the Australian property market.
If you’re new to investing in the real estate market, you will definitely want to know this information.
1. The Australian Property Market is Expected to Become More Affordable
The cost of houses in Sydney and Melbourne rose 56 percent and 33 percent from 2012 to 2015. It is expected these prices will start to decline over the next 12-18 months. A QBE Australian Housing Outlook report predicts that property value will become more affordable.
The report predicts that the median house prices in Sydney and Melbourne will decline in late 2017 and 2018. The city of Sydney is expected to see a 5 percent decrease in property value during this time period.
This information spells very good news to those looking to invest in real estate property. The costs within the real estate market will become much more affordable over the coming years around the country.
2. Development has Risen in Australia
Along with the expected affordability of housing, the country has seen high levels of development in recent years. For example, in April 2015, the number of building approvals grew to 10,000.
The amount of construction going on in Australia has also remained high and will continue to grow in 2017 and beyond. In some places, the supply of extra dwellings end buildings will further lead to a decline in the costs within the Australian property market.
The QBE report also predicts the costs of individual apartments and houses will drop. Every city may see unit prices decline anywhere between 1.2 and 6.2 percent.
Sydney is expected to see the largest decline at 6.2 percent, which means that the median price for these types of property would drop below $700,000.
The huge rise in development and construction around the country will decrease property costs.
3. Investors Should be Cautious of an Apartment Oversupply in the Major Cities
There is a record-breaking amount of construction going on in Sydney, Melbourne, and Brisbane. The construction is leading to an oversupply of apartment units for the market.
The outlook for investing in apartments within the inner cities is not that good. Construction companies are building more and more apartments. The oversupply means that investors should be cautious when buying any apartment property.
Yet, if you’re looking for a bargain, you may benefit more from distressed sales later on down the road.
“With more potential downside risk in our major markets, investors need to be strategic about their investment approach,” said Ben Kingsley, Chair of Property Investment Professionals of Australia (PIPA).
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4. Interest Rates may Decline Even More in the Australian Property Market
Currently, the interest rates in Australia are at an all-time low of 1.5 percent. The cut in interest rates by the Reserve Bank was done to boost growth in the economy and regulate inflation.
But, some feel concerned that declined interest rates will have a negative effect in an already unstable real estate market.
The credit strategist Alberto Gallo predicts that interest rates may decline even more in the near future.
“There is going to be a very long environment of low, near-zero or negative rates, and clearly Australia is converging to that environment,” Gallo said.
Record low interest rates may also benefit the home buyer and the typical investor within the real estate market. Investors and buyers will pay less interest in the long run to banks for their loans. Repayments could therefore be smaller, which increases the cash flow of your investment property.
5. Fractional Investing is Becoming the New Trend in Australia
To take advantage of the expanding real estate market, more investors in Australia are buying up pieces of real estate property. This is called ‘fractional investing’ and it has become the new trend throughout the country.
This allows investors to put money down in property sales without having to spend hundreds of thousands of dollars. Demand for fractional investing is high in Australia right now, according to DomaCom and BRICKX.
“It’s a global phenomenon and is disrupting the current markets,” said DomaCom Managing Director Arthur Naoumidis.
DomaCom’s fractional investing has led to sales in 39 properties that have a value of $24 million. If you’re interested in buying land and housing, you may want to consider the latest trend of fractional investing.
6. Investment Lending has Slowed Around the Country
In July 2015, the Australian Prudential Regulation Association (APRA) provided direction to the banking sector to reduce the amount of investment lending. As such, a number of financial institutions and banks raised interest rates on investor loans anywhere from 25 to 30 points. This has limited the amount of loans as well as the overall value of investor loans.
By 2016, the value of investment lending dropped by 17 percent, according to the QBE report. The amount of residential loan activity has been in decline. Also, growth in investment lending has slowed down to below a 10 percent threshold.
So if you are an investor interested in Australian real estate, be aware that interest rates for investor loans have risen. Be aware that investment lending has slowed down around the nation.
7. Auction Clearance Rates have Dropped
When the prices of housing are high, auction clearance rates are usually booming. However, over the last few months, the rates of auction clearances have dropped to the mid to high 70 percent range. This is likely due to a slowdown in price growth of property in Australia’s major cities, Sydney and Melbourne especially.
The rates have declined from the mid 80 percent range, but these levels still reflect a solid and strong housing market. Auction clearance rates above 70 percent are still in good standing.
However, if the rates continue to fall to mid and low 60 percent range, there would be a significant rise in private sales against house auctions. At this point, investors and home buyers should be cautious.
Auction clearance levels at this point would indicate a falling market that may face a hard landing.
So keep your eyes and ears open. Pay attention to the auction clearance rates in Australia before making an investment in real estate property.
These seven facts should give you a better idea of the Australian property market today. Our experts can further help you learn about real estate investment.
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