The four factors investors must look out for heading into 2024
Property investors have much to consider when assessing the property market but four key factors stand out heading into 2024.
Successful property investing doesn’t just involve recognising a well-priced property or a prime location.
As investors, we also need to be mindful of broader factors that can play a role in the performance of our residential markets.
Below, I discuss four key macro-factors that are crucial in assessing a property market’s full potential.
A country’s overall economic performance has a crucial flow-on effect for residential property values.
The health of our economy determines job opportunities, wage growth and employment levels. This in turn shapes consumer sentiment and disposable incomes – the funds people have to buy, rent or invest in property.
The upshot is that it’s important to stay up to speed with the drivers of our economy.
Right now, we’re hearing a lot about how the world needs to transition to renewable energy and energy storage capacity. Australia is well-placed to help the world do this, particularly the more resource-rich states.
The International Energy Agency, for instance, has forecast that demand for lithium will increase as much as 42-fold by 2040. Australia has one of the world’s biggest lithium reserves, with most of its production coming from mines in Western Australia.
Other minerals such as cobalt, copper, and nickel are also expected to experience rapidly rising demand.
That’s good news for the mining sector – and the broader economy in general.
A growing economy translates to rising incomes, meaning more people investing in housing, which underpins value growth.
Population growth is essential for a healthy property market. New residents mean more demand for housing, which supports rising values.
ABS data shows our population in Australia grew by 496,800 people (1.9 per cent) in 2022.
Migrants accounted for 78 per cent of this growth, highlighting the important role international migration plays in the property market.
Of course, new migrants do not disperse evenly around the nation. They tend to be attracted to areas with plenty of jobs, affordable housing and a quality lifestyle.
As well as looking at the overall trends in population growth, it’s therefore important to consider which specific areas are set to benefit from these demographic shifts.
Interest rates have an obvious correlation with demand in the residential market, in that they directly impact a borrower’s ability to purchase property.
However, much like population trends, rising interest rates don’t impact all Australians equally.
One factor investors often overlook when analysing the impact of rising rates is the significance of demographic composition.
Renters and young homeowners, who are likely to have large mortgages, tend to be impacted more by interest rate rises than older homeowners with smaller home loans (and in many cases, savings that are actually benefiting from interest rate movements).
In these cases, interest rates can have little to no impact on home-buying decisions.
Understanding a suburb’s demographics can help investors predict how rate movements are likely to affect local property values. A rate hike can hurt values in some locations (such as first home buyer areas), while having negligible impact in others.
Changes to our tax regime or initiatives that impact housing demand or supply can have a profound impact on property values and investment opportunities.
However, this is an area where governments tend to tread carefully.
In 2019, former Opposition leader Bill Shorten went to the polls vowing to scrap negative gearing on certain properties. A resounding election defeat saw Labor hastily dump these plans.
Nonetheless, it pays to stay abreast of what’s happening in politics.
The future of the Australia Future Housing Fund, the government’s key policy to address the housing supply shortage, hangs in the balance.
Right now, the Federal Senate is conducting an inquiry into the rental crisis, with the terms of reference firmly centred around renters’ rights.
Yet we know that 2.2 million family investors supply private rental homes Australia-wide.
For these mum and dad investors, the prospect of rent freezes or rent controls is genuinely worrying.
Given that only 3 per cent of tenants rent from a government housing authority, according to the Real Estate Institute of Australia, it’s a no-brainer that we need more private investors to support the rental market – not less. It would, in my view, be a much wiser step to consider initiatives aimed at boosting supply.
The bottom line
As you can see, there are many broader macro-factors at play in shaping a property market’s potential. However, as with most market drivers, these don’t impact all areas and markets equally.
Knowing how to critically apply these factors alongside the right data can be crucial in pinpointing which specific areas are set to benefit from these trends – and which are set to lose out.