After another week of 1250 sales The market may seem a little repetitive. The interest rate rise this week did absolutely nothing to dampen enthusiasm at auctions or negotiations. In fact, it has more than likely solidified the belief that the economy in Australia has turned the corner. More than slowing the property market down, I believe the next couple of interest rate hikes will push prices even higher.
The stock market is recovering but is still largely dependent on global events. This is still making the smaller, average investor a little nervous. There is still plenty of bad news coming from the US and Europe, albeit not as bad as last year. However, the property market, especially in Melbourne is being driven by very local factors; people entering our shores and a very large majority of these heading for Melbourne. There seems to be no change to these characteristics on the market in the foreseeable future.
Supply and demand are the leading factors driving price and this will continue for a very long time. Whilst the world economy will recover slowly and even the Australian economy will take time to get back to its peak, everyone needs somewhere to live. Whether renting or buying this means house and apartments will become much more valuable than they are now.
Over the next ten years or so we will begin to see density patterns change. Although most local councils tend to make life difficult for developers even doing simple dual occupancy sites, I can see this changing in the future. The cost of perpetually expanding Melbourne will simply be too much to bear on those 50+ kilometres from the CBD. This means we will see colossal increases in prices on apartments within the 10km radius and also on properties with over 600sqm of land up to about 30kms from the Melbourne CBD.
It will also mean that Geelong may see its largest price growth for a very long time. Some of the other larger regional centres may see some increased growth but it is unlikely to exceed that of the properties within 30km radius of the CBD.
Nobody can determine what will happen in the future, we can only look at historical trends as well as where we find ourselves now. The top third of suburbs in Melbourne have had median price movements of 10% per annum or more since 1980. I believe these will be higher over the next ten years.
But even if they remain at 10% then the average investor who has 20% equity in a current property or $100k cash deposit can have a property with equity (value of the property minus any loans) worth over $800k. For all you maths buffs out there, this is effectively over 20% per annum and about as safe as any investment can be. This assumption is made as a simple one off investment of one property, leasing it out at an average level and then having it valued with a rise in price of 10% per annum.
The above example is very simple; you can increase this exponentially when you begin to reinvest equity as soon as possible. If you wish to have a chat about any of the above please do not hesitate to call and make a no obligation appointment.
Ian James