Is there really no safer investment than bricks and mortar?
What does the next decade hold in store for the Australian property market as it responds to factors such as housing supply issues, population trends, economic uncertainty and government policymaking?
Property markets around the world are renowned for periods of strong growth in property values and other periods of either flat markets or indeed price correction markets.
But those periods are when markets are studied in relatively short-term periods. The true story of real estate is always clearer in the medium to longer term.
For example, Australian dwelling values soared 67.5 per cent in the past decade. This was during the aftereffects of the GFC, when we experienced a period of stagnation in the market and, of course more recently, a period of phenomenal price growth.
Official figures show that even with high interest rates in 2023, official national price growth was 8.1 per cent.
Potential investors missed out on much of that financial gain over the past decade due to hesitancy and uncertainty about whether real estate was a good investment and, in more recent times, the belief that investors could not compete with home buyers as home buyers were paying premium prices in excess of what an investor would pay to get a good return.
In reality, the environment for property investors has never been better. Australian vacancy rates have hit record lows according to CoreLogic, with cities such as Adelaide at 0.3 per cent, Perth 0.4 per cent and Melbourne 0.8 per cent.
Remember that a 3 per cent vacancy rate is regarded as a balanced market. Anything above 3 per cent vacancy will generally see softening in rents and anything under 3 per cent sees rents rising, so with vacancies below 1 per cent, it is no surprise that with demand exceeding supply by such a substantial amount, the latest PropTrack market insights report shows that Australian rents are 11.5 per cent higher than they were 12 months ago.
The stage is set for the journey forward, but with an array of factors to weigh up.
To keep our economy growing and expanding there is a desperate need for a significant jump in key workers. Whether it is in nursing, doctors, the ADF and most police forces around Australia, they are all suffering declines in their ranks and the only answer is immigration.
Natural population growth is a 20-year wait to see newborns reach the workforce and so it’s no surprise that we have just experienced a record year in immigration and as a consequence, a record year in population growth.
Increased population growth not only puts pressure on existing rental stocks but without the ability to house our population growth, we will not be able to have migration at the levels needed and as a result our economy will stagnate.
All proposals by government to now are no more than band aids.
But all of those band aids don’t even come into effect for five-plus years.
Sadly, across all levels of Government, no matter what political meetings they have, bureaucracy within different structures always leads to significant delays and most plans not coming to fruition.
Around 70,000 new rental properties are needed now to rebalance the market.
Government will have very little impact on this and so it is the private sector, the mum and dad investors, that are critically needed not only to ease the rental crisis but to help accommodate skilled labour that is necessary to help keep our economy providing prosperity to all Australians.
Any uncertainty by investors should be cast aside. The stage is set for the next ten years, where property investors will not only receive excellent annual returns but strong property price growth. The two combined will provide investors with the safest form of investment.
The Australian situation is not unique in the world. In fact, most Western populations are experiencing the same situation.
Looking around the world it is interesting to note that the mega rich are increasingly turning to the residential rental market as their latest preferred investment.
Long-term property outlook
Some areas are better investments than others.
We see the significant population shifts that have occurred post-pandemic.
Some regions are seeing their population phase decline as people migrate to other areas and of course that means other areas are the recipients of significant population growth.
As such, not only is the demand greater but the returns are better.
Who would have ever thought, for example, that rents on the Gold Coast would be higher than Sydney.
So, the call is out to Australians to refocus on investment opportunities.
Where else do you get better returns than in real estate, as befitting the adage that there is nothing safer than bricks and mortar.
The path is clear for at least the next 10 years, and who knows, there may be another 67.5 per cent growth in property values through that decade.
