Author: Dale Alcock, Owner ABN Property Group
The economy and market conditions have a direct impact on property investment. This resource covers current trends in the market and explains how you can prepare yourself to take advantage of property highs and lows in 2016 and beyond.
Dale Alcock started in the property industry as an apprentice bricklayer over 30 years ago, and has since built a portfolio of businesses called the ABN Group. The ABN Group owns over 20 businesses which employ over 1400 people, 3000 independent contractors and more apprentices than any other builder in Australia.
Dale is one of the most respected leaders in the industry when it comes to buying property in Australia and shares a brief explanation on the economy and current market fundamentals.
The investment property market and in more general terms, the housing cycle is constantly shifting. Regardless of whether you are a first time investor or a seasoned professional, you should always take key market fundamentals into account before making any decisions. At the same time, you should not let the market dictate your decisions or deter you from purchasing property. Given property is a long-term investment, fluctuations, peaks and troughs will usually balance out over the lifetime of the investment, meaning if you are in the right position then there is never a bad time to invest.
The economy and current market situation
We are currently situated at the bottom of the cycle, where we will likely stay for the next few years. Consumer confidence is low and the economy is suffering, reflected in the rising unemployment rates and all-time-low interest rates.
Based on years of experience and real-life scenarios, this is where there are real advantages and positives in the market. Land is competitively priced, builders are promoting competitive rates and interest rates are the lowest they’ve ever been. If you are in the right position to invest and want to get into the market, then you can take advantage of the opportunistic silver lining that is currently being offered to you. As long as you have equity in your own home or in the bank, a secure job and confidence in your position, then it’s a really great time to buy.
It can pay to enter the market when other people are exiting it. One of the reasons for this is that you have price stability and competitiveness, which sets you up for an upturn in the market, albeit whether it is some time away from where the market is currently sitting.
History proves that real estate moves through a cyclical pattern, highlighted with ‘boom and bust’ scenarios. Although we have recently come out of a ‘boom’ and look to be in a ‘bust’, it won’t be long before we are back in the ‘boom’ cycle.
If you enter the market during a downturn, you are privy to a choice of affordable land, have access to quality builds at a competitive price without delay and can take advantage of low interest rates and negative gearing.
On the other hand, if you enter the market during a boom cycle, then you will often have to pay more for land, wait longer for your build to be complete and pay higher interest rates.
If you purchase during a downturn, you may not see massive returns immediately, however you can still achieve great results in the long term.
Population growth in Perth
Perth has always been an area with high population growth. If you look at market projections, the Australian Bureau of Statistics states the population in Western Australia will likely grow from 2.6 million in 2014 to 4.9 million people by 2042.
Although the growth outlook is lower than recent years, it is still set to rise at a decent rate, meaning there should continue to be a stable population of renters for years to come.
The demographic outlook also shows that Perth will be home to more kids, families and retirees over the next ten years. This is great news for investors as families are often long term renters.
Lifestyle is key
Lifestyle is very important for Western Australians, with many older families and retirees choosing to pack and up move to the coast for a lifestyle change. Families are also moving towards areas with growing amenities and lifestyle offerings.
When you are building an investment property, it’s important to consider lifestyle and design your home to suit the lifestyle of your potential tenants. Through Dale Alcock Homes, Investor Assist has a range of products on the market to suit various demographics and lifestyles. All products have been designed to attract people already in the rental market who are looking for an upgrade and care about lifestyle.
Understand the market and demographics of an area before you buy
Every suburb in Western Australia has a different demographic focus. Before you look at purchasing any property, it’s important to get to know the local market and understand what the particular demographics are of the suburb you are interested in.
For example, the 2011 census results showed that the suburb with the highest amount of registered marriages is Burns Beach at 66% and the lowest is Northbridge at 21%. After studying these results, it would make sense to purchase a larger investment property in Burns Beach that is suited to families and a smaller investment property in Northbridge that is more suited towards singles and de facto couples.
It’s also worth considering which areas are currently being described as property hotspots. A property hotspot is an area or suburb that has been identified as having potential for stronger growth (short or long term), compared to the rest of the market. Visit our website and download our Property Hotspot Guide for more information on where some of the hotspots in WA are located.
Property verse shares
Although research tends to show that property and shares have performed similarly over a long period of time, they are both very different types of investments and their performance is impacted by different factors.
One major advantage that property has over shares as an investment is the ability to leverage a significant amount of a property’s value. Banks will typically lend more to someone investing in property than in shares. And if you already own your own home, and have a reasonable amount of equity in it, you may not even need a deposit to buy an investment property.
Another advantage is that when you invest in property, you receive the security of bricks and mortar. You can drive past your home, make changes to it as you see fit and maintain relative control of your property over the years. Even if you are only getting a modest return on your investment, many people still favour property investment as they can see where their money is being invested, unlike shares which are all managed through cyberspace.
Five reasons to be positive about the future
- Perth offers critical mass and access to a vast resources base. The city will always prosper, regardless of whether there is a gold boom or a slump in iron ore prices, there will always be resources mined in Western Australia and we will continue to be well served by our land.
- Perth has a culture of boom and busy. We will recover over the medium term and there is certainty in knowing that hard times are followed by great periods of recovery and growth.
- Beyond the mining boom, Perth will deliver growth through health, education, logistics and military. Tourism is another growing sector, with Asian visitors favouring our city as place to visit due to the shared time zones and easy connections.
- The Perth lifestyle is envied by many. We have great beaches and parks and numerous shopping, dining, entertainment and recreation facilities. People from outside of Western Australia love the laidback style and lots of people come to WA when they are looking for a lifestyle change
- Perth is a global city, positioned in a strategic region of rising importance. Have long term faith in our city and you will be sure to reap the rewards.
Regardless of the economy or market conditions, it’s important you are in a solid position to invest before you even think about entering the property market. In the end, a good property investment decision is all about location (where to invest), timing (when to invest) and an in-depth understanding of what to build and who to build it with.
You can watch the full presentation from Dale Alcock regarding his predictions for 2016 in a video.
If you are interested in speaking to one of our Property Investment Specialists, you can contact them here or call 08 9200 7200 today