Current market projections predict Australia is facing a concerning housing shortage. Australia’s real estate market is in need of new property developments, and as a result, it is also a good time to invest in the property sector. This shortage means the demand for housing remains strong, despite the recent Global Financial Crisis and European melt down.
Is there a Property Bubble in Australia?
A ‘property bubble’ usually references a market where properties rapidly increase in price until the point at which income and the general state of the economy deem the market unsustainable. Typically this results in a substantial decrease in property values that can leave many owners holding a property they owe more on then it is worth, or negative equity. A property bubble is a risky market to buy property as property values are likely to decrease. Typical identifiers include increasing prices and the construction of many new property developments without the consistent long term demand.
The Australian market is showing signs of steady growth and the construction of new developments is underway, however the developments are not keeping pace with the strong rate of demand, which makes the market steady and in our opinion not a property bubble.
This property undersupply is caused by continued population growth and weak building approvals – the rate of new property development in Australia is not keeping pace with demand. A market in undersupply is typically characterised by steady low vacancy rates and increasing rental yields – the deciding factor between ongoing undersupply and a bubble is the long term demand, or the long term undersupply, which is a real factor in Australia right now.
Analysis of Australia’s Current Housing Supply Status
With a growing shortage of properties as well as steady population growth, it is highly unlikely that housing prices in Australia will dramatically decrease – the economy and relative income rates have the means to sustain current pricing. However, due to the Global Financial Crisis amongst other factors, many of Australia’s markets are at, or close to, the bottom of the cycle which means we are currently in a ‘buyers’ market. New property developments are offering exceptional deals with many savvy purchasers negotiating incentives including discounts, furniture packages, tenancy guarantees and so forth, making now a prime time to capitalise on the opportunities available.
New developments provide excellent potential for capital growth and good financial returns. New developments are generally lower maintenance, quite often provide higher rental returns and offer a higher level of depreciation which can be claimed as a tax offset. However, buying a property in a new development does not negate the need to buy in a well demanded growing area – as always, it is important to find a residence with strong prospects for capital growth and tenantability
For more information, contact LV Prestige today.