People are constantly asking me, ‘Where are we in the cycle?’.
I can see why many people have been looking at the market a bit quizzically over the past few years.
In our just released McGrath Report 2020, I share a few of my observations and the trends that I believe are having an impact on market performance across the East Coast of Australia.
Record low listings
This is the case in most markets right now. My view is that two things are driving the current shortage:
– Transition costs. Upgraders in big cities are paying close to $100,000 in fees and absurdly high stamp duty. This penalises almost every single Australian moving around the property ladder as their life circumstances change. But it’s the issue that nobody wants to talk about in government, on either side. They seem addicted to the revenue it brings them. As a result, it’s possible that these lower levels of activity will remain for some time
– Uncertainty in the world economy. When people are uncertain, they generally stay put. Whether it’s Brexit, the US-China trade war or the China-Hong Kong tensions, many people are waiting to see how some of these play out. With the 2020 US election looming large, we may find that until we get some resolution on these issues and clarity on the political direction of the US, listing levels will remain on the low side
Continuing record low interest rates
It appears we might be in this environment for some time to come, which works positively on two levels for the property market:
– When it’s cheaper to borrow money, the more people buy and the more they can borrow
– Property becomes the No 1 investment choice. Real estate is far more attractive when you’re getting close to zero for lazy cash in the bank. The days of 5% or 6% returns on deposits are long behind us. The closest asset to cash in the bank, in most people’s minds, is bricks and mortar
image via McGrath
So, as we peek into the crystal ball, here are a few of my predictions…
– Investors return in sizeable numbers – 3% plus capital growth beats the hell out of 1% or none for cash
– Overseas buyers return, and I anticipate some of the recently formed overseas investor taxes starting to loosen and Australia continuing to look like the best place to live, learn and work
– Regional markets continue to grow in popularity courtesy of high metropolitan prices, baby boomer sea and tree changers and people being able to work virtually from anywhere
– Listings remain tight in the short term but return to more normal levels beyond 12 months
– Prices remain stable on the East Coast; Darwin and Perth see a positive bounce by 2021
– Investment or lower grade apartments built in the past decade fall in popularity due to recent construction issues
– Massive infrastructure investment has a positive impact on values in hidden pockets
– South East Queensland outperforms, with both investors and lifestyle seekers looking for better value than they can obtain in the big southern cities
Also, in this year’s report are my Top 5 Suburb Picks for greatest capital growth potential in each East Coast capital city. Our report contains more detailed reasons for my picks, so if you’d like to find out more, please download a full copy of the report at mcgrath.com.au.
Sydney Suburb Picks
image via McGrath
Breakfast Point: New roadway infrastructure has brought it 10 minutes closer to the CBD, yet it still feels like you’re on holiday at home.
Erskineville: Inner-city gem close to the CBD with the revitalised Australian Technology Park next door.
Sandringham: Not the beachside Victorian one, but the beachside Sydney one! On the water, hidden away and affordable. Hard to believe but true. Buy, sit and wait.
Castle Cove: This leafy north shore enclose is tightly held for a reason. Offers some of Sydney’s best mid-century architecture and only 12 minutes to town.
Kensington: Well undervalued compared to her swanky neighbours, with the new light rail about to shorten the CBD commute. Well under valued compared to some of her swanky neighbours.
Melbourne Suburb Picks
image via McGrath
Kensington: Grand Victorian architecture and a 10ha park makes this an aspirational suburb for young families. A -11.6% softening in its median house price means there is plenty of upside left.
Carnegie: Carnegie’s multicultural ‘eat street’ on Koornang Road contributes to its high liveability score.
Watsonia: An often forgotten pocked of Melbourne’s north east. Stands to benefit from the new North East Link, which cuts the city commute by up to 35 minutes.
Cheltenham: Houses under $1 million, the opening of Southland train station in 2017 and the recent expansion of Westfield Southland makes Cheltenham a go-to destination for savvy young buyers and investors.
Upwey: Offers a wonderful lifestyle in the Dandenong Ranges, with express trains making it an easy 50 minute commute to Flinders station in the CBD.
Brisbane & Gold Coast Suburb Picks
image via McGrath
Gordon Park (Brisbane): With major public works including the construction of the Northern Busway and Airport Link tunnel now complete, Gordon Park is an appealing option.
Oxley (Brisbane): With plenty of homes priced under $500,000, the gentrifying older suburb of Oxley is an appealing alternative to its affluent neighbours of Sherwood and Corinda.
Hendra (Brisbane): Well located and sitting next to blue chip Ascot and Hamilton, Hendra’s turn is coming.
Chermside West (Brisbane): Retirees are leaving and young professionals are moving in. Affordable houses and far fewer new apartments than Chermside gives it a family friendly suburban feel.
Broadbeach Waters (Gold Coast): Offering beautiful canal front living just a few blocks from the beach, this bridesmaid to Broadbeach is benefitting from the ripple effect right now.
Canberra Suburb Picks
image via McGrath
Bruce: Fantastic location just a 5.2km drive to Canberra’s CBD. Closer still is the University of Canberra, Australian Institute of Sport and the retail and commercial hub of Belconnen.
Theodore: Offers affordable family homes of a similar style and quality to its more expensive neighbour, Calwell.
Holder: Offers some of the city’s most affordable housing within a 15 minute drive of Canberra’s city centre. Be quick as locals are catching on, with house prices surging 16.4% in FY2019.
Strathnairn: Construction has begun on this first suburb in the six star rated Green Star Community, Ginninderry, which will deliver 11,500 new eco-friendly homes over the next 30 years.
Weston: Some original 1970s gems with plenty of potential can still be found amongst the newer homes. It has a shopping centre and 10 schools within a 3km radius.
We hope the McGrath Report 2020 helps clarify where we are in the cycle and the market trends emerging for the years ahead. Download a full copy at mcgrath.com.au.
