Melbourne’s property market appears to have bottomed out and is on the rise again, particularly since the last federal election in September this year. Many including myself have been waiting for this election to be behind us, as that is what was understood might restore some confidence and once again kick start our economy.
The data is showing improved sales numbers and auction clearance rates and property prices are starting to increase. All good signs that consumer confidence is on the up. Could we actually be at the start of the next market cycle?
History has shown that the market cycles every 8-10 years, but our last one lasted much longer than that. The last real economic downturn was back in the late 80’s / early 90’s. I do recall a very small slowing since then (I think it was around 2005), but that was very short lived, and I can’t even recall why it happened.
Funny enough, although the GFC happened in late 2008, the property market in Melbourne kept growing until late 2010 and through 2010 in particular saw a massive price growth in the new land market, with prices increasing up to 10% just that year. Unfortunately though it all just about came to a halt after that, and really only just kept trickling along following a fairly large price correction in 2012, where prices went back to those 3 plus years prior.
It essentially became a ‘buyers’ market and because of the slowing sales numbers, competition for ‘sellers’ increased significantly and created a pricing war amongst builders and construction contractors.
We also saw interest rates decrease over this period, to the point where they are now the lowest they have been for many years, if not the lowest on record.
There are also signs that we are following the lead of the likes of Europe where housing affordability continues to decline, pushing more and more first home buyers out of the market. Plus it appears that more people – particularly our younger generations – are also choosing to rent rather than buy, and all this seems to point to increased rental demand moving forward.
So when you put this all together, what does it all mean for the ‘developing investor’ right now? Well it appears that we are possibly going to begin transitioning from a ‘buyers’ market to a ‘sellers’ market once again as our economy grows through the next cycle, so there are a few things which might further your advantage.
I have already explained how taking a developing investor approach not only provides the same maximum tax benefits as buying a newly completed property, but creates additional equity and therefore savings on the purchase price, allowing you to free up your original equity for other things. Right now however, the following additional advantages may also apply.
- Competition to find sites with development potential is likely to increase, and so is their price. It might be easier to find the right development site now, at a better price, compared to when our economy is booming again.
- Development Costs are likely to be lower now than in the future. Building and Construction Costs are still competitive and interest rates are well below long term averages. This not only means relatively less equity to source, but increased savings on the unit(s) you decide to hold.
- The project may take 12 to 18 months to complete, so should you decide to sell one or more of the finished units you develop, the timing will be somewhere from 6 to 18 months from project commencement, so a continued price growth trend can achieve a better sales price and therefore improve your savings even further on the unit(s) you hold.
- Not only can you start with a better rental yield due to the savings you make on the unit(s) you hold, but rental demand is likely to increase as more are choosing to rent or cannot afford to buy. Not only does this provide confidence of finding and maintaining tenancy, but increased competition amongst renters is likely to push rental prices up over time, so your rental income will be paying for the mortgage and other ongoing expenses before you know it.
Time to secure your next project as a ‘developing investor’? Please give me a call on 0438 028 194 or email firstname.lastname@example.org to assist you with the property development and investment strategies available to you.