Despite the softening of major city markets and the tightening of the credit environment, the Australian property market continues to offer wealth-creation opportunities to investors. What are the growth drivers that will support the market moving forward?
Propertyology’s Simon Pressley said that despite the doom-and-gloom headlines that seem to dominate the media nowadays, the condition of the property market is actually never as bad as most people believe.
In fact, according to him, “consensus is often grossly wrong”.
“Some recent examples: The GFC was going to be the Armageddon and the property prices were going to crash. 10 years on, hasn’t happened. In 2014, no one had anything positive to say about Hobart. Fast forward 18 months later, there started a boom that’s still going. In 2016, the consensus was that you could never oversupply Sydney and Melbourne. Fast forward 18 months, those two big markets are receding in value.”
“In 2017, everyone said regional markets never grow because there’s no jobs there. In 2018, there were about 40 or 50 regional locations that performed spectacularly well and 200,000 jobs have been created in regional Australia over the last two years.”
“Overall, if we listened to consensus today, the odds are we’re going to be wrong. Investors need to understand the fundamentals and what that means for the coming years rather than getting absorbed in the here and now,” Mr Pressley highlighted.
Moving forward, the property professional believes that there are five main factors that will drive growth into the property market:
Treasurer Josh Frydenburg announced his first budget last 3 April and he predicts a surplus amounting to $7.1 billion. If delivered, this will be the first budget surplus in 12 years.
According to Mr Pressley, after the hit that Australia took due to the global financial crisis, to reach a surplus would be a massive achievement.
“Just to bring it back onto a smaller scale like a household budget—if you're spending more than what you own you, you're not in a in a good position and, eventually, it's going to catch up with you. Scaling back up at a federal government level—when the budget is in surplus, that means, for a start, they're paying less interest on debt, so taxpayers pay less, too.”
“It also means that the government has a greater capacity to fund infrastructure projects and essential services—that's got to be a great thing.”
At the moment, Australia’s finances are actually in good condition—better than most periods within the past 10 years, Mr Pressley said. Therefore, a budget surplus will only improve the conditions of the markets further.
“The biggest influence on any property market is economics, more than anything else, and our national economy is better in 2019 than any period within the last 10 years. Therefore, the outlook for our property market is better than what it has been for a long time.”
One of the most significant elements of a strong economy is consistent jobs growth, and Australia continues to create hundreds of thousands of jobs annually, according to Mr Pressley.
“We've now had two consecutive years where this country has created more than 300,000 jobs each year…. We have had a few years before where this nation has created 300,000 or more jobs in a calendar year, but not many and certainly not in consecutive years.”
In fact, even regional markets, which were never expected to grow significantly in the past years, have been reporting positive results in terms of jobs growth and overall strength of the economy.
“200,000 of those jobs are outside of our eight cities yet all we hear about is doom and gloom,” according to the property professional.
In terms of the condition of the property market, the tightening of the housing supply translates to greater demand for dwellings, which then results to better yield and long-term growth for investors.
While Sydney and Melbourne are currently witnessing a softening in their property markets, other cities have been bucking the downward trend, including Queensland’s Brisbane and Western Australia’s, as well as most regional markets.
“Brisbane's unit market is tight, but it is not as bad as what it was. If we put all dwellings together, Brisbane certainly doesn't have a supply issue, and neither does the six capital cities other than Sydney and Melbourne.”
Even vacancy rates are going down, which could mean that rents are likely to increase significantly soon.
“Vacancy rates are also really shrinking, especially outside those big capital cities. Perth’s vacancy rate used to be 6.9 per cent—scary stuff. Today, it's 3.3 per cent.”
“I reckon we're going to see not just tight housing supply, which puts pressure on prices, but we're also going to see rents trending up, possibly more than what we've seen for a decade,” Mr Pressley said.
According to Mr Pressley, there are four or five major free trade agreements that Australia has recently signed with major Asian countries such as China, South Korea, Vietnam and Japan.
“What this means to Australia is the cost for someone from another country to buy our goods and services… we're wiping a lot of the taxes off, particularly on our agricultural products.”
“‘So what?’ Well, what that means is that it becomes much cheaper for other countries to buy our products, and business owners—from farming to manufacturing and logistics—are incredibly excited about this. While you don't just sign a trade agreement one day and create a job the next, when someone creates a path for you to expand business, a business owner runs down that path.”
“These things don't take effect overnight, but the pathway has been created. This is partly why regional Australia is already expanding,” Mr Pressley explained.
With jobs growth and wage growth occurring as a result of cheaper exports, investment activity is likely to increase over the coming years.
“People will be more confident and they're going to be looking at opportunities in the property market moving forward… This is property economics.”
Finally, contributing to the strengthening of the national economy is the significant spending on Australia’s defence this year.
Over the next decade, the Defence Force Fleet is expected to manufacture $290 billion, Mr Pressley said.
“10 years is a long period of time. More importantly, $290 billion is an enormous amount of money. What does that mean to a property investor? It's jobs and it's jobs right around the country—hundreds of thousands of jobs.”
“We're talking about all types of employment, from engineering and planning all the way through to (maintenance and repair). All those people are now banging on the door saying to take advantage of the pipeline of jobs here."
“It really just goes back to confidence (of people to jump into the property market)... This is property economics,” Mr Pressley concluded.