InSynergy looks at understanding Australian property market dynamics and why some property markets boom, while others decline.
A commonly used headline in the media is ‘House prices decline, leading to a downturn in the housing market.’ It’s truly astonishing that in a country as vast as Australia, the media tends to oversimplify the narrative by using the umbrella term ‘Australian property market’ to describe all cities and regions.
In reality, Australia boasts a complex and diverse real estate landscape, with various markets experiencing growth at different times and rates. States vary significantly from one another, cities have their unique characteristics, and houses, apartments and townhouses each have their distinct market dynamics.
Misconceptions and market realities
A common misconception is the belief that any property represents a sound investment opportunity, but this is far from the truth. Many individuals tend to invest in familiar or comfortable areas, often guided by personal networks, without taking the time to conduct in-depth research to answer fundamental questions. For example, they may overlook critical considerations such as the area’s capital growth forecast or the cash flow potential of a specific property.
Australia features a multitude of diverse property markets, comprising nearly 10 million dwellings, each with its own cyclical pattern of rapid growth followed by phases of stagnation or minimal growth. Various factors influence these growth cycles, allowing us to make informed predictions about where the next high-growth regions and investment opportunities will emerge. It remains surprising how many people are willing to invest hundreds of thousands, if not millions of dollars in property without seeking expert advice and conducting comprehensive research.
Property cycles unveiled
Property markets in Australia follow cyclical patterns that typically span about 14 years. This cycle includes a high- growth or boom phase of approximately seven years, where property values tend to increase by about 100 to 150 per cent. Following this, the next seven years often witness subpar growth or a plateau phase, with property values fluctuating between zero growth and a positive or negative 30 per cent. It’s worth noting that during the same period, one market may be experiencing a boom while another is in a plateau or decline phase. The magnitude and duration of these phases can be influenced by significant events in a city, such as the Olympics in Brisbane or major infrastructure investments in Adelaide.
In the initial stages of a property boom, rental returns and affordability are relatively high, often resulting in positive cash flow for many properties. Conversely, as the boom phase nears its end, rental returns and affordability decrease, usually leading to negative cash flow. This is currently the situation in Sydney, and a similar scenario is unfolding in Melbourne.
The difference in property value growth over a seven-year period can range from zero to over 100 percent, which means that for a $500,000 property, the difference in growth can be around $500,000 or even more. Additionally, rental returns tend to be much higher during the early stages of the cycle.
Brisbane and Adelaide: translating growth lag to opportunity
Property cycles exhibit a remarkable level of repetition and predictability. Looking back over the past 80 years, we can observe that the property markets in Brisbane and Adelaide have experienced nearly identical growth compared to Sydney and Melbourne, with a time lag of about seven to eight years. In essence, Sydney and Melbourne tend to see around 100 per cent more growth than Brisbane and Adelaide. As a result of this higher relative affordability in Brisbane and Adelaide, people often choose to migrate from Sydney and Melbourne to these cities, which further stimulates their growth. This trend holds true regardless of changes in interest rates, as these rates tend to affect all markets in a similar manner.
House Price Difference Calculator – Brisbane and Adelaide
House Price Difference Calculator – Sydney and Melbourne
A 100 per cent increase in growth translates to a substantial $1 million in additional growth for a $1 million property within approximately seven years. However, when considering factors like the upcoming 2032 Brisbane Olympics and Adelaide’s unprecedented infrastructure investment of over $380 billion, there’s even more reason to anticipate that Brisbane and Adelaide will outpace Sydney and Melbourne by more than 100 per cent in the upcoming property cycle. Additionally, the rental income in markets on the brink of booming is significantly higher relative to property values, offering not only higher growth potential but also elevated rental returns.
To maximise your investment effectively and securely, there are excellent strategies available. Seek a reputable property wealth planner who has access to comprehensive Australia- wide research and a proven track record to assist you in making these crucial decisions. After all, your choice could be the difference between a highly successful or underperforming property portfolio, potentially amounting to hundreds of thousands of dollars over the long term.
Richard Sheppard is the CEO and founder of inSynergy Property Wealth Advisory. inSynergy provides a broad range of professional services designed to assist with all aspects of property investment. Phone 1300 425 595 or visit insynergy.net.au