Why today's property market could reward the bold

The Reserve Bank’s policy around interest rates has largely served its purpose although, of course, the repercussions have caused significant discomfort for all borrowers.

The scourge of inflation has huge ramifications for any economy. This is why, around the world, most Reserve Banks have a clear objective of keeping inflation contained within a 2 to 3 per cent range. Inflationary growth is important, but anything outside this range is very damaging to the economy.

The pandemic created worldwide inflation, however, bit by bit, it has been reined in, largely by Reserve Banks increasing interest rates to reduce spending. This has ultimately brought inflation back into that preferred range.

Around Australia, the ramifications of higher interest rates have been significant.

Most markets have seen a notable drop in annual real estate price growth, and in some areas, growth has actually gone into the negative. It has also reduced the borrowing capacity of many buyers or, at the very least, reduced the amount they could borrow. That has kept the market somewhat subdued.

As interest rates have almost done their job and inflation is, at 4.0 per cent, heading back towards its range, we have started to see some rate drops, with more forecast. These reductions won’t happen quickly, but they are expected, as Reserve Banks remain cautious not to allow a sudden resurgence of inflation.

For the housing market, this means we can expect to see a growing appetite to re-enter the market by an increasing number of people.

This trend is already evident in the rising number of attendees at open homes and the growing volume of offers on properties and auction registrations.

Traditionally, the winter season sees a slowdown in the market, as people prefer to stay indoors but spring reliably marks the return of buyers to the marketplace in greater numbers.

Population’s impact on property

What is often forgotten is that Australia continues to experience incredibly high levels of immigration on a daily basis.

This immigration is bittersweet.

It is necessary due to the huge shortage of skilled labour evident in our hospital system, education sector, defence forces and more. As such, there will be no significant easing of population growth.

Yet, month after month, we continue to see no substantial increase in housing construction to accommodate this growing population. As a result, demand for real estate continues to swell, both from owner-occupiers and investors seeking properties to lease to tenants.

As in many countries around the world, the percentage of Australians purchasing their own homes is declining.

This naturally leads to a growing tenant population. Yet, we still do not have nearly enough investors buying properties to meet that demand. Consequently, the rental market will continue to see rising rents, driven purely by demand outstripping supply.

Investors unnecessarily hesitant?

I have been in the real estate industry for some 50 years, and I have never seen conditions better for investors. Yet many potential investors remain hesitant — worried about real estate prices, interest rates, outgoings or even tenancy legislation. In doing so, they lose sight of the bigger picture: all the fundamentals of real estate point to continuing price growth over the next decade, in both rental rates and property values.

There isn’t any other form of investment currently offering a more secure return than real estate.

With the big spring selling season on our doorstep, all buyers, whether investors or owner-occupiers, should be looking to capitalise on the current market before increased buyer activity drives a strong surge in property values.

Most of us have looked back and said, “I only wish I had purchased in 2020, 2021, 2022,” and so on. We didn’t, because we were concerned about rising property values, with many suggesting the market was overheated and would soon stop growing or retreat.

As we have seen, that hasn’t happened and waiting has only cost people more money in higher purchase prices.

Real estate in these types of markets is for the bold, the brave, and not the faint-hearted.