The QBE Australian Housing Outlook 2018-2021 has been released and the forecasts are positive for those looking to invest outside of Sydney and Melbourne.
We called it early (again!) when we wrote about Property Investment in Adelaide back in July and now, QBE has some interesting data to back up the future outlook for this city.
Adelaide housing market set for 12.4% growth
Affordable cities like Adelaide are starting to attract some serious attention from first-home-buyers and investors. The price point and affordability rate of 19.3% (based on the median house price as a percentage of average household disposable income), tells a positive story for the next few years. Adelaide is forecast to experience a median house price growth of 12.4% between 2018 and 2021.
The median house price at June 2018 for Adelaide was $493,900 (less than half of Sydney’s) and $376,300 for units. Adelaide house prices are one of only four Australian cities to have experienced a positive annual growth (4%) to June 2018. Hobart homes topped out the annual growth with an increase of 10.6%, and Brisbane and Canberra experiencing a minimal (0.6% and 0.7%) growth.
‘Buy and hold’ strategy replaces ‘flipping’ in Sydney & Melbourne
Whilst Adelaide, Hobart, Canberra, Darwin and Brisbane are forecasted to experience a reasonable rate of growth over the next three years, Sydney and Melbourne are predicted to go backwards in values.
Buying now in Sydney and Melbourne should be considered with a buy and hold strategy. With the annual movement of house values set to drop -1.2% for Sydney and -2.5% for Melbourne between now and 2021, a longer hold period will be needed to recover those losses. Unfortunately, unit values don’t fair any better, with a -3.1% movement for Sydney and -2.1% for Melbourne.
Flipping a property in Sydney or Melbourne becomes increasingly risky, where investors had previously relied on property growth, as well as improving the condition of the property. And whilst a completed, renovated property tends to sell quicker than unfinished or old properties, the opportunity for profit has reduced significantly. Now, improving a property may only mean the property attracts a buyer, rather than sitting on the market for months on end.
A ‘buy and hold’ strategy takes into consideration the future market conditions, exit strategies and reducing home loan repayments as much as possible. When a market is likely to go backwards, buyers need to be realistic on how they will manage the property, keeping costs low and having an exit strategy without expecting a large profit at the end of it.
Your strategy affects your home loan
Getting your home loan structure right at the beginning will mean you won’t have to risk changing your home loan in one or two years. Loan applications rely on the valuation of the property, so if your property value decreases, you may not be able to renegotiate your home loan interest rate or terms successfully. Working with an experienced mortgage broker like Mint Equity gives you the opportunity to plan for the future and consider all the elements of your home loan that you need now and later on. You may want to pay down the loan as quickly as possible, so working with a Sydney mortgage broker will give you the guidance to make the right decision.