Is Property Still a Good Investment? Find out why..
If you’re confused about the Australian property market, I don’t blame you.
From some portrayals of the media, there’s nothing but doom and gloom, with talk that COVID-19 will burst Australia’s property ‘bubble’ and see property values tumble.
Others, however, argue that property investment remains a safe bet and will continue to be so for years to come.
I’m in this camp. I firmly believe that there is still no better way to build wealth in Australia than through property investment.
Let me explain.
There are a number of key factors that will continue to drive growth over the long-term.
Scarcity of Supply and Growing Demand
The value of anything is determined by its relative scarcity, and scarcity is fuelled by actual and perceived supply and demand. Where there is more demand than supply, the value of something is likely to rise.
In Australia, a housing shortage will continue to drive the property market. Research from ANZ in 2016 revealed that Australia faces an estimated property shortage of more 250,000 dwellings, a deficit of 2.6% based on Australia’s housing stock of just under 10 million.
Changing demographics
Australians are living longer, and residing in smaller households.
According to research from Professor Graham Hugo, average life expectancy has increased by more than 14 years (about 20%). Looking ahead, the ABS predicts that average life expectancy will be 92 for males and 95 for females by 2050. This means that people will need to be housed for much longer, putting more strain on housing availability.
Since the mid-1960s, the household has also reduced from 3.4 to 2.4 persons. This 40% decrease is because Australians are choosing to remain single for longer, marrying, partnering and having children later in life, and unfortunately, divorce and separation continues to rise. For example, ABS statistics from 1986 to 2006 revealed that one parent households rose by 120% and single households were up 80%.
Population growth
Australia has one of the highest population growth rates in the developed world. This is mostly due to our high immigration rate.
And while there is a temporary hold on migration, once the borders are open this growth is set to continue as Australia continues to prove it is one of the safest and best places to live in the world. The ABS predicts that Australia’s population to rise to between 36.8 million and 48.3 million in 2061, reaching as high as 70 million by 2101.
Consider this simplified forecasting - Australia will have 16.5 million more people by 2061 and, based on the average household size of 2.4 persons, we’re looking at around 156,000 extra dwellings each year, on top of the existing national housing shortage of 250,000!
Is now a good time to buy property?
History has repeatedly shown that property is very resilient to economic shocks as well as continues to hold its value and grow irrespective of unemployment levels and negative economic growth. The after-effects of COVID-19 will be no different.
In fact, current market conditions create a rare window of opportunity to secure good-quality properties before the combined impact of continued share market volatility, historically low-interest rates and Australian dollar. In addition, massive government stimulus tips confidence and growing demand back into the property market including high-quality properties in scarce locations continue to rise in value. For smart investors, now is the time to pounce not to pause!
Of course, high-growth will not be across every city and region in Australia. It is expected that 70% of property market growth will come from the greater capital city regions of the eastern states: Queensland, New South Wales and Victoria. This will be driven by career opportunities (high employment), infrastructure investment and lifestyle needs.
Property: ‘As safe as houses’
When it comes to property investment, it’s pretty clear that the numbers will continue to stack up. To emphasise the point, if the growth rates of property are equal to or even somewhat less than shares, the power of leverage will almost double your wealth creation compared to equities.
Of course, before throwing yourself into the property market, make sure you do your research, seek advice from experts and put your own, personalised wealth plan in place.
