What a difference a year makes. Just 12 months ago, many Australian property markets were in the doldrums. Home values nationally had dropped 4.8% over the previous 12 months1, investors were facing softer rental markets, and borrowers face tight lending restrictions.
Fast forward to the start of 2020, and the picture is very different.
Lenders’ stress tests were eased in 2019, interest rates have hit new historic lows, and the property market has staged an exceptional comeback.
Here are five reasons why property needs to be on your investment radar in 2020.
1. Values are rising
In mid-2019, the property market made a remarkable turnaround. The latest figures from research group CoreLogic show that across our state capitals, property values rose 4.7% in the final quarter of 2019.
Even December – a normally quiet month for home sales – saw home values rise 1.2% nationally, a figure that climbs to 1.7% and 1.4% for Sydney and Melbourne2 respectively.
Such is the strength of the market recovery that CoreLogic estimates property values could reach new historic highs as early as March 2020.
2. Rents have risen
Over the last year, rents have risen by 1.2% nationally. Some areas have seen far higher increases such as Hobart, where rents rose 6.0% through 2019, and Perth, where rents climbed 2.1%.
The growth in rent reflects the combination of softer investor activity and a drop in the construction of new homes, which has led to a tighter supply of rental properties.
Rental yields (rental income expressed as a percentage of a property’s market value) are also strong. Yields currently range from 5.9% in Darwin to 3% in Sydney. These yields, which are in addition to capital gains, are vastly higher than the returns on cash assets.
3. Interest rates are at historic lows
Not only has the Reserve Bank of Australia slashed the cash rate to a new record low of 0.75%, some economists are predicting further rate cuts in 20203.
Not only does this make a rental property more affordable, it also makes it more likely that a growing number of investors will enjoy positively geared properties.
4. Supply of new homes is tightening
The Housing Industry Association is predicting a drop in the number of new homes to be built over the next year4. The number of new detached homes is forecast to fall by around 10,000, while apartment commencements are likely to be put on hold until those apartments currently underway are completed and occupied.
A tighter supply typically raises the value of an asset. But it’s also being backed by increased demand. In 2019, Australia’s population grew by 381,6005 – and all these people need somewhere to live, boosting demand for rental properties.
5. Property is a strong long term asset
Despite the market downturn of 2018, residential housing has a healthy track record of strong long term returns.
By way of example, property values in Sydney and Melbourne fell 8.9% and 7.0% respectively in 2018. Yet by the end of 2019, these cities, which were hardest hit by the market downturn, had recorded 10-year rises in property values of 66.7% and 53.5% respectively.
Is property right for you?
Owning a rental property is a personal goal for many Australians. But you need to be quite sure that it is the right decision for you.
Remember too, housing markets vary widely across Australia, with varying levels of price, tenant demand and rental yields. So it pays to research the market thoroughly to be sure the area you plan to buy in meets your needs, budget and long term goals.
Your Mortgage Choice broker understands that each investor has different aims. With access to a panel of over 20 lenders, we can compare dozens of loan products to find one best suited to your unique needs and goals.