The trend in 2022 seems to be mixed for the commercial property market. Even though growth takes place at a slow pace, property values may be higher at the end of the year.
Many analysts didn’t anticipate the average price rise would be stronger the way it was in 2021. As auction clearance rate dropped, investor lending slowed and property prices stabilized, it shows that we are in another phase of the property cycle.
The property market in 2018 seems to be shaped by the following trends.
A moderate price growth
The extraordinary price growth in the last year that cities like Sydney and Melbourne experienced is ending. Therefore, APRA tightening of the lending policy and the interest rates that RBA makes will shape the property values throughout the year.
Unchanging interest rates
Melbourne and Sydney property booms seem to be stifled by APRA action to create a “credit squeeze” that has tightened the bank lending criteria.
Banks are now starting to have minimum loan defaults and the financial position is becoming healthy due to the slowdown in the low-interest rate environment.
This implies that APRA will not further the existing screws but will most likely relax its guidelines in the coming future.
A sprout of Community office hubs
Landlords of vacant shops in struggling streets have news to smile about as the microbusinesses keep on springing every now and then due to entrepreneurship.
Young and self-employed entrepreneurs who possess the social contact and creativity are now establishing micro-businesses that have an office style environment which was once the domain of home-based working dads and mums. Community office hubs offer startups and freelance professionals and an open-plan office setting that resembles a coffee shop.
Younger generations and older or semi-retired professionals see this pre-loved fittings furnishings amazing as they spring up in the lifestyle suburb areas.
An Individual use of the space whether every day or casually will determine the price as the premises housing owners are willing to offer membership to the hubs rather than leasing it to various tenants.
Growth in population looks strong
A strong population growth usually impacts the property market. For instance, the population of Australia grew by 389,100 and the trend is expected to continue till it reaches 25 million.
According to ABS (Australian Bureau of Statistics), the housing and warehouse demand has spurred to 145k over the last 5 years due to the existence of the strong population. The shift in the real-estate composition means that the demand is expected to increase by 5%.
For instance, the anticipated oversupply that Melbourne apartments experienced were soaked with the 2.4% population increase in Victoria (which has one of the fastest growing population).
A large chunk of the total population growth, nearly 60%, is attributed to the net overseas migration. You find that while other territories and states increase were majorly natural, some like Tasmania, Victoria, South Australia and New South Wales experienced change due to overseas migration.
Less lending restrictions
When APRA fails to impose lending institutions restrictions, the interest rates remains stagnant without any principle international surprises, the capital city property values in many areas of the country will exhibit the following characteristics;
- The Sydney property market will not crash but will continue to grow between 4 to 6 %.
- Melbourne real-estate properties like villas, town units and warehouses are likely to be the best-performing markets with a growth of around 6 to 10%.
- Infrastructural growth and job growth will make Brisbane market to escalate high to about 3 to 6 %.
- Speculators who are searching for the next hotspot will find Hobart an appropriate place as it performance will be between 6 to 10%. However, places like the Apple Isle with few long-term growth drivers should be avoided as they may turn from the hotspot to “not spots.”
- There is expected to be a steady performance of about 4 to 7% in Canberra, but property investors’ morale may be derailed by the excessive land tax.
- Perth which has a growth rate of around -1 to 1% is not a suitable place to put a countercyclical investment as its capital growth is not that strong.
- The prices in Darwin seems to be operating at about -1 to 1 % due to the few long-term growth drivers.
Investors should avoid off plan and new apartments investments that are in the CBD areas due to the significant new stock levels that are attempting to quench the high market demand.
Inexperienced investors have been trying to acquire any property that fits their budget due to FOMO (fear of missing out) over the last few years were fortunate because of the rising tide.
Investment grade properties will experience a flight of quality and still sell well, but secondary properties will languish in the market.
More investors seem in the periphery
Many would be investors still wonder whether property remains a smart investment with the current subdued growth.
The fact that capital growth will expand by double-digit in the short term can be a challenge for some investors. But the prevailing slower markets environment will give investors who have a smart mind impetus to buy the properties that are able to compete strongly in the future.
What to do to stay ahead of the pack
In order for investors to navigate through the Australian market that is experiencing a lot of varied conditions, a careful consideration and independent professional advice will guarantee you a softer landing in the property market.
A good independent property investment strategist will give unbiased advice whether to a seasoned or a beginner in property investment a means formulate an investment strategy, review the existing one and help navigate the investment to the next frontier.
Other major findings in the Australian market
Australia is still an attractive investment destination despite the high borrowing costs due to the 3 to 4% underwrite escalation and Being the only Asian market where you can acquire properties that have very long leases.
However, the reluctance of owners to sell their properties due to the existing limited options has made investors have the challenge of lack of choice in the Australian real-estate market.
Many investors (even the foreign investors) are now looking at options outside the CBD since there are more purchasers than sellers. Alternative assets, as well, are tending to be critical and popular like the institutional assets in Australia.