Early indicators point to a cooling market
Australia’s booming property market is showing early signs of cooling as buyer enquiries drop with the conclusion of t...
The current property market is seeing a boost of confidence following recent political and financial moves. If investors want to stand out in this market, this property expert reveals what they need to be looking out for.
The results of the federal election, APRA proposals and the recent rate cut by the RBA have all boosted confidence in the property market, and according to Glenn “Goose” McGrath of Dashdot, this is creating strong key indicators of growth and yield.
“We’re seeing a lot of positivity returning to the sector, but the big switch now is there’s a lot more focus on positive cash flow properties, which is great,” Mr McGrath said.
“We’re looking for locations which will net positive cash flows as well as really strong one, two, three-year growth. So, for us, it’s about finding that balance.
“We see these factors as they’re absolutely critical to building a portfolio.”
The right ingredients
The successful markets, according to Mr McGrath, are seeing tightening vacancy rates, declining days on market, strong population growth trends and strong economic growth prospects.
“So, there’s obviously a lot going on in the market in a general sense, there’s obviously multiple markets across the country and there’s obviously pretty concerning reports with all the off-the-plan defaults recently, particularly around Melbourne, and they’re obviously hitting the major developers pretty hard,” he said.
“We’re sticking to established properties with a positive cash flow, have value-add strategies such as granny flats, renovations, subdivisions, boarding house conversions.”
Another trend Mr McGrath has noticed is that regional locations are outperforming capital city counterparts, but that does not mean that capital city markets hold no potential.
“Regionals are outstripping the capitals for the average buyer in terms of buying opportunity and value proposition, but that’s not for every buyer.
“What we’re also seeing… is that there are still buyers that have got the financial capacity to weather the storm, and to those buyers that are looking to just have big intergenerational wealth plays, there are really great opportunities to be found in Melbourne and Sydney right now in general under market value purchases being able to be picked up, which are going to buy very strong growth returns in the long term, even if they aren’t driving the cash flow returns.”
What’s not working
South Australia is one particular market that Mr McGrath is seeing heating up, but this also means there are some downsides to consider.
“The North Adelaide segment of the market is showing excellent signs of growth, obviously with the defence contract and the public and private infrastructure there, particularly with new roads opening up that space, and there’s massive gentrification plans happening all through that tiny little pocket; we’ve been watching it for a while and it’s really started to come into its own just now,” Mr McGrath said.
“It is harder to hit the stronger yields, the demand is extremely high, the market is very hot, which means very little discounting; it’s harder to get the under-market value opportunities, but the first new growth forecast in that area is excellent, so it’s a great capital growth play there.
“We’re finding the best value opportunities in that market in the $450,000–$550,000 price range.”
Meanwhile, Mr McGrath labelled the Northern Territory, Tasmania and the ACT as areas that are better off being passed up for other opportunities.
“The Northern Territory [is] still deep in recovery and we’re not doing anything there. Tasmania, it’s obviously been in the media quite a lot over the past 18 months, 24 months, and for us, it’s too hot there, there’s too many buyers moving into the area. We don’t see the value equation,” he said.
“That’s not to say there’s not growth happening in that area; there’s absolutely growth happening in there, but what we are really looking for is to try and capture that maximum uplift.
“Tasmania’s out of our scope at the moment, it’s getting towards the top of the cycle and the best opportunities are past for now, and that’s a similar story to the ACT as well;… Queanbeyan’s still got some interesting stories happening there, but for us, the best time has passed in those areas, and we’re considering them to be a bit too hot, a bit too high in the cycle.”