As Australia’s split-personality real estate market gets crazier, falling prices in Sydney and Melbourne will shape the national direction of bank interest rates and political decisions — so hang on for the ride.
A report last week by CoreLogic found that home prices fell in December in Sydney, Melbourne, Perth and Darwin. Prices rose in Adelaide, Hobart and Canberra and Brisbane was flat.
While one month is not long enough to measure property price movements, CoreLogic’s quarterly data shows weakness emerging in the big markets of Sydney and Melbourne, which have boomed in recent years.
Investors and owners won’t be too happy in those cities, but their pain should mean gains for other capitals — especially Adelaide and Hobart where prices are rising.
That’s because the banking and political world revolves around Sydney and Melbourne. It’s understandable to a degree, because those cities represent close to half of the nation’s population, but spare a thought for property investors and owners elsewhere.
In the past couple of years banks aggressively lifted interest rates for investment and interest only loans to slow the Sydney-Melbourne booms. Little thought was given to Perth investors already suffering years of sinking property prices, or Adelaide investors whose market had gone nowhere.
Similarly, government and regulator crackdowns on investment lending were a broadbrush approach rather than state or city specific.
It hurt many owners, buyers and investors in areas where prices weren’t booming, but now that broad brush is likely to benefit them.
If Sydney and Melbourne have a downturn, you’re unlikely to see sharp interest rate rises that would worsen the slump. Sorry savers and retirees — don’t expect your interest rates on bank deposits to improve from their current bucket-of-slop levels.
Similarly, governments won’t go hard on property if the big two are suffering a big crunch.
Investors are already targeting Hobart, fuelling a boom there, and looking at Adelaide and parts of Queensland for future growth.
Australia’s real estate market moves in cycles, but their timing varies between states and cities, creating opportunities for savvy investors.
It’s a good argument for considering interstate property investments when expanding your real estate portfolio, but you’ll have to do your homework and seek unbiased advice.
Spreading property investments also helps avoid land tax, and reduces risk through diversification.
If you don’t have a lazy $200,000-$500,000 or spare equity sitting around, there are plenty of other ways to cash in on property. Real estate investment trusts can be bought on the share market or through advisers and spread money across commercial, industrial, residential, office and other real estate.
Fractional investing is new and allows people to buy pieces of an individual property, while self-managed super funds can boost exposure to real estate — as long as people don’t raise their risk by putting all their eggs in the property basket.
Property investment options — just like the nation’s property market personalities — are varied and interesting.