The year that was and is likely to be

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Last year we have seen some rather large upheavals both across the world and in the property market here in Melbourne. We saw Brexit, China trying to advance its boundaries into the South China Sea, The Philippines new leader saying he was happy to sever ties with the US and of course in the USA, The Donald – Donald Trump.

In the property market in Melbourne we saw huge growth in average median values in houses as well as exceptionally poor growth in units and apartments. We also saw turnover numbers drop. This is relatively unusual as normally a high growth rate comes on the back of higher turnover.

Whilst the world political climate will stumble through 2017 and no doubt cause many heartaches for many people, our property market will most likely continue on its upward trend regardless. Unless there is a seismic similar to the GFC, or an international trade war that ends up paralysing the world, I believe the Melbourne property market will move forward in a similar fashion to last year.

According to Core Logic figures released for December 2016, Melbourne had overall growth of 13.68% but this was split disproportionately between units and houses. Houses jumped 15.08% yet units only rose 1.74%. And these are averages, there were plenty of suburbs where house prices rose 20%. To put this into perspective; If you were looking to purchase a home around $1M in January 2016, and you kept being $10k – $20k short, you will now require at least $1.15m – $1.2m to still be missing out by that same $10k – $20k!!!! Just upping your budget by 15% will not put you in a better position than you were in January last year – it will put you in the same position!! Around the country only Sydney fared slightly better than Melbourne, (overall growth of 15.46%), whilst everywhere else fared very badly, with Perth actually dropping in value by 4.33%.

The more times we see low volume and high growth the more likely it is we will move towards fewer people controlling more properties. In Germany and Switzerland 41% and 38.4% actually own their own homes as opposed to Australia at nearly 70% and dropping. Whilst the government seem more perturbed about first home buyers being able to buy, I think it far more important to make sure there are enough houses available to house everyone, no matter who owns them. Why is it seen as a mandatory step to purchase your own home. There is nothing wrong with renting if the Residential Tenancy Act assists tenants with longer leases and therefore more security.

We will see more families holding properties inside family trusts and passed down generationally. It will soon become next to impossible to purchase a property unless your family owns other property, you create a business that succeeds well above average, or you win TattsLotto!! As far as I can see property prices will continue to rise at a rate equal to around 8 – 10%pa indefinitely.

Many people say prices cannot keep going up, but they can and do almost every year. Most property commentators look at taxable incomes and say that property cannot keep rising faster than wages. But they fail to look at the growth within the family home. This does not appear on any spreadsheet as there is no taxable component. When a person buys a home for $500k and has a $400k mortgage, they hold it for 10 years, pay down $200k and have a home worth $1m and a mortgage of $200k. They sell that home and buy a $1.2M home. They will need a mortgage of $400k. The same as they did 10 years earlier but now have a property worth 2.4 times as much. And they don’t need to be earning any more money – yet they probably are and are now thinking about an investment property by utilising their extra income and equity within their existing dwelling!

Property prices have not peaked. Property prices will continue to rise, and very quickly as we now see fewer people selling than in the past and a lot more looking for their 2nd or 3rd property. Melbourne has the highest population growth rate, low unemployment and I believe the media commentators are united in saying we are unlikely to see any interest rate rises soon. This is the perfect storm for property price increases. And it will continue for quite some time to come.

If you are having difficulty purchasing property please feel free to give our office a call and we can catch up for a no obligation chat.

Ian James
JPP Buyer Advocates

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About the author

Ian has been operating his own businesses for more than 25 years. During this time the self taught lessons of building the business, dealing with staff, suppliers, clients and economic woes have been invaluable. Ian is a fully licensed Real estate Agent, a member of the REIV and registered with the Business Licensing Authority.

Buying property is not just sticking up your hand and outbidding your rival. It is an emotional, fiscal and psychological decision that needs to be planned and well executed. Ian is usually involved in over three hundred property negotiations per year; ranging from the $250,000 first unit purchase for a young couple to multiple million dollar residential developments. Ian's business background and endless numbers of negotiations make him one of the industry's leading negotiators.

Ian is married with two adult children, living in Patterson Lakes. He is a keen fisherman when weather and business allows the time.