Shifting markets provide opportunities for property investors in 2016: Damian Collins

GUEST OBSERVER 

The Australian property landscape is nearing a significant turning point – as the Sydney and Melbourne markets start to run out of steam, two other cities are emerging as the next investment destinations of choice. 

Unless you’ve been living under a rock recently, you’ll know that house values in Sydney and Melbourne have skyrocketed. 

The average dwelling price in Sydney has spiked about 16% in the past year, while Melbourne prices have increased by about 14%.

However, the signs are that these markets are close to running out of steam.

This downward trend is expected to continue into 2016 as well, as investors continue to move their attention away from the overheated markets. 

So as these two markets begin to slow, where’s the next destination of choice for property investors?

There are two clear standouts in my view – Brisbane and Perth. Why? Because both of these cities are continuing to evolve into their own.

While I admit that much of the wealth created in Brisbane and Perth over the past decade has been through the resources boom, both cities are currently undergoing significant structural change.

While the resources sector will always provide valuable contributions to these cities, there is a concerted move by each state government to grow other industries, such as professional services, health, tourism and education, among others. 

With this transformation, both cities are developing strong, diversified economies, which will prove resilient in the long term and underpin property prices. 

Currently, both Brisbane and Perth represent great value for money for property investors. 

Housing affordability has improved in both cities in 2015. The average Perth household spends about 21% of their income on mortgage repayments, which is the lowest level since 2004. 

Similarly, Brisbane households spend about 23% of their income on mortgage repayments. 

These are among the most affordable capital cities in Australia, particularly compared to Sydney and Melbourne households, which spend 39% and 32%, respectively, of their income on mortgage repayments.

Given the strong long-term outlook for Brisbane and Perth and relative affordability, it makes sense for property investors to turn to these cities to gain exposure to these underrated markets. I wouldn’t expect significant gains in the next 12 months, but over the medium term I’m confident these two cities will outperform Melbourne and Sydney.

Damian Collins is the founder and managing director of Momentum Wealth and can be contacted here.