“Transformation of an area has an immediate impact on property values offering intrinsic value.”
Employment Fundamentals
Look at any major capital city worldwide – “When you have the highest paying jobs in Australia, which is concentrated in the city and surrounding suburbs, then the highest value property will always be in these locations” and the same also applies to Sydney and Melbourne
Sydney is adding around 85,000 new people per annum & Melbourne a similar figure. This continues to underpin the market and thus property values, especially when demand continues to outpace supply of new dwellings required to house this population growth. These new immigrants (and migrants) are arriving and demanding property to live in or rent!
Australia by design is importing around 190,000 people per annum and there is no current talk of slowing this figure down. Just where will these people live; as each family or individual coming onto our shores requires a roof over their heads (to own or rent). The strength of demand for the product is significantly high and also growing on the back of natural population growth from within Australia
As an example, 39% of today’s Sydneysiders were born overseas. No other city in the world has as high a proportion, with Melbourne not far behind and growing in numbers due to Sydney becoming unaffordable
“Population Growth (migrants) are like Fuel added into a strong burning fire.”
When a population doubles in numbers in a capital or regional city, then more people are competing for that same property which is coming to market
Higher competition, wanting the same commodity, has never forced the price down, the adverse occurs and values of that commodity increase according to the supply and demand in that market. In this case the commodity is Residential Property and Supply is struggling if not failing to keep up … resulting in price growth!
Australian Capital cities are all planning for high Population Growth by design (a doubling in population growth in some cities), the same scenario painted above will continue into the future as population in these areas grow. The result is even more people now competing for the same residential property; how will prices come down? Based on Australia’s current economy and planned population growth they won’t. Sure during this time some areas will soften or correct, this is normal cyclical property behavior whilst others are rising. Australia is made up of thousands of property markets and media irresponsibly over generalise. Think about it, how many postal codes does Sydney or Melbourne have and we know property will vary accordingly across them
Sydney, Melbourne, Brisbane or satellite cities such as Werribee, Geelong, Wyhdham, Blacktown, Newcastle, Sunshine Coast or Ipswich & Logan etc will have more people competing for the same property supply, especially over the course of the next generation. The logic of this is blatantly clear on the back of a growing local economy, improvement in infrastructure and new job nodes being created
“The next generation will not commute an hour and a half to work and 8 hours later commute another hour and a half home.”
Regional or Satellite cities will continue to grow and strengthen in population and their economy. They will evolve into new major employment hubs, alleviating the increasing difficulty and lengthier commute times for people outlying residents into major cities.
New jobs and employment opportunities are already being created in these satellite cities, which in turn are attracting people looking for the affordable lifestyle and employment opportunity. Just look at how the likes of Newcastle, Geelong, Sunshine Coast and the likes have evolved
This is a major reason why Investors continue to secure investment property in these growing regional cities. Inner Sydney or inner Melbourne has become unaffordable to a large percentage of investors (and want to be owners) and the price rises of property here, has resulted in a lower rental yield as a percentage, thus impeding on the required cash flow to support the investment for investors wanting to invest today
Yet the adverse is occurring in satellite cities, where property values on a 4-bedroom house are in the mid $500’s. Here the demand for rental property is very high and rental yields are verging on 5% of the value of a new property. Would you want to be in a one-bedroom apartment in Sydney for $700k or in Melbourne for $450k with a low rental yield percentage, or a 4 bed house in a growth corridor, with land in the mid $500’s and a rental yield of around 5%?
Gentrification of major cities has transformed our lives, as will gentrification of these satellite cities experiencing generational demographic shifts. The city and its culture and the way we operate will positively change over time due to a change in demographics; resulting in a sustainable growth in property values
Think about it :
“If you knew what would be occurring on the ground in the year 2018 in the inner suburbs of Sydney, Melbourne or Brisbane 20 years ago … how much residential land would you have bought back then on the doorstep of the city and what would your property be worth today?”
Economic Pistons
Well right now, today you have the same opportunity of foresight because Newcastle or Sunshine Coast or Werribee is evolving into a city and you still have the opportunity of investing close to their CBD’s.
Sydney and Melbourne are the economic pistons of Australia and both present as major employment hubs. As the Australian population grows satellite cities will become regional cities and the closer into these new cities you are, the more valuable the block of land, townhouse or apartment will become. Look at emerging job generating pistons and at how fast they are growing and this will determine the potential of your investment into one of these locations. This concept has value to an investor
Jobs come on the back of new government investment into new infrastructure such as roads, schools, hospitals, public transport etc in these locations. Transformation on an area has an immediate impact on property values offering intrinsic value. There are an enormous number of big picture infrastructure projects occurring in Australia, identify where they are and invest as they will change residential property values forever
A prime example of this is the new Metro Tunnel in Melbourne which will go from North Melbourne, through the CBD, through The Domain and onto South Yarra, this must change property values in North Melbourne, Domain and South Yarra forever. Did you know that there is already a convergence of railway lines through North Melbourne which is becoming another employment hub on the back of current and future infrastructure, a healthy convergence point in Melbourne
Convergence is a mix of infrastructure, jobs, transformation, gentrification and infill of property to provide dwellings on the back of a rising demand
This same concept is occurring right now in the growth corridors previously mentioned such as Melton, Werribee, Wyndham, Geelong in Victoria or Sunshine Coast, Ipswich or Logan in Queensland or the likes of Newcastle or Western Sydney (on the back of the new Airport plans)
Current Market Status – generalised
Some locations will soften; others will go sideways whilst other locations will continue to grow. Different post codes in the same city are reacting differently to the current market. Identify and see the bigger narrative and story behind it, avoid looking at the Australian Market or the Sydney Market or Melbourne Market as one market. It is not and never will be
- Sydney has definitely slowed down and softened on the more expensive inner suburb values yet outer Sydney continues to strengthen on the back of significant demand and affordability plus improved public transport infrastructure
- Outside of Sydney the likes of Newcastle, Dubbo and Western Sydney remain under growing demand and values continue to strengthen
- Melbourne is a mix of a slowdown but also growth. Inner suburbs still have strong demand and demonstrating continued (albeit slower) growth whilst outer Melbourne continues to achieve around 20% growth on the back of incredibly high demand, affordability and new infrastructure and job nodes
- Brisbane continues to rise in value outside of the CBD with growing demand for homes in the inner suburbs which continue to remain largely affordable. As Brisbane implements its plans to grow to the size Melbourne population is at today the demand for the ‘right’ dwelling in preferred locations continues to strengthen
- South East Queensland has the highest investment into infrastructure in the history of Australia and evolving into a significant growth corridor where new jobs, affordability, lifestyle and population growth continues to place growing pressure on supply of new dwellings. The golden triangle of SEQ includes from Sunshine Coast in the North, down through Brisbane and onto Gold Coast in the south then inland west to Ipswich and back up to Sunny Coast including Toowoomba
- Perth according to researchers has bottomed out with potential of a gradual recovery as vacancy rates tighten and the local economy improves
- Adelaide is projected to experience a rise in residential values and could experience a resurgence such as Hobart has experienced the past couple of years
There are markets within markets and postal codes next door to each other can and do achieve differing growth, we urge you to avoid generalising and for goodness sake’s if you are going to invest in property AVOID reading media. Media are there to create hype and fear in order to sell more advertising space. Read this article to see just how irresponsible media are and they just don’t give a #rap
Market Fundamentals required for capital growth
Population growth remains a major driver of property value increases, on the back of new infrastructure, which creates sustainable jobs growth. Another driver of residential property includes current demographics or a change of demographics in that area due to these same change in fundamentals
Compiled by Stephen Lazar, Director of properT network 7th April 2018