About this time each year, it’s customary for those of us in the property industry to peer into the future in an attempt to predict what’s ahead for our housing markets.
While making such forecasts is not an exact science, I can safely make five predictions I am certain will be true for 2019.
1. Most predictions will be wrong!
My first prediction for the year is it will be a bad year for those in the prediction business.
I’m sure this will be correct as most economic and property experts get it wrong despite being armed with all the research available in today’s information age.
The problem is while the fundamentals (things such as population growth, supply and demand, employment levels, interest rates, affordability and inflationary pressures) are easy to monitor, one overriding factor the experts have difficulty quantifying is investor sentiment.
Currently, investor sentiment is low, in fact, it’s the lowest it’s been for decades, despite the economic fundamentals being quite solid.
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2. Many things won’t happen and others will
Many of the predictions for 2019 won’t happen and a lot of things will happen this year that no forecaster thought to include in their predictions because market movements are far from an exact science.
Every year there is an ‘X factor’ — sometimes called a ‘black swan event’.
This is an unpredicted factor, either locally or from abroad, that affects our markets either positively or negatively.
However, in retrospect, these unexpected events will seem to be the obvious consequences of the current economic and political environment.
Last year no one really predicted the full impact on the world of finance from the revelations of the Haynes royal commission or the depth of the crisis in consumer confidence that would be brought about the credit squeeze.
3. Some forecasts will be right
I predict a small number of the many economic and property forecasts for 2019 will accidentally come true and those who randomly predicted them will claim to be experts, despite the fact it was the first time they got one of their hundreds of forecasts right and that they adjusted their forecasts over the year as circumstances unfolded.
4. Most property investors will get it wrong this year
This one is simple, because they always do!
And I’m not talking about those who fail to take action this year and wait for things to be just right before they get into the market, even though that will be a big mistake this year.
What I’m talking about is based on data from the Australian Housing and Urban Research Institute, which shows 20% of those who do invest in property sell up within the first 12 months and 50% sell within the first five years.
These failed investors will never gain the long-term wealth-creation benefits that property investing is all about.
5. Those who get it right will do very well
And my last prediction is those property investors who get it right will do very well out of real estate this year and set themselves up for the years ahead.
Those who saw previous property downturns as a counter-cyclical opportunity have consistently done well for themselves. They recognise the slower market as a chance to invest when others are too afraid to buy and when there are more willing sellers in the market than purchasers.
However, not all investors who buy during the downturn will get it right.
That’s because you can’t just buy any property and expect it to outperform in the long term. The key is to buy the right type of property, in the right location.
At this time in the cycle, correct asset selection will be critical.
You need to buy an ‘investment-grade’ property below its intrinsic value and one that has a ‘twist’. There needs to be something special about it — like value-add potential that allows you to manufacture capital growth through renovations or redevelopment.
Ideally, you should look at purchasing in the inner- and middle-ring suburbs of our major capital cities in locations that have a historical pattern of above-average capital growth, regardless of the ups and downs of the property cycle.
Because the value of property in good locations will continue to increase in the future due to scarcity.
All of those factors are underpinning our already healthy economy — economic growth, jobs growth, population growth, the shortage of the right type of property and infrastructure spending will also have a positive impact on this type of property.
A few more property predictions for 2019
Other factors that will affect our property markets this year will be:
- The availability of finance;
- Consumer confidence; and
- The result of the federal election.
If our property markets slump further this year, the RBA has the ability to lower interest rates as it has often done in the past, or APRA can loosen the screws and allow investors and home buyers to borrow more freely.
I can’t see any indication of a rate rise in 2019 — if anything they should fall — but the RBA doesn’t like to fiddle with rates in the months leading up to an election.
Of course, any fallout from the Haynes royal commission into banking will further affect the banks’ willingness to lend and possibly their need to lift rates out of the cycle.
And I can’t see consumer confidence improving significantly until after the election due to the unknown future status of negative gearing and capital gains tax.
This means there will be further moderate price falls especially in Melbourne and Sydney and there are likely to be significant price falls for new and off-the-plan apartments.
In the meantime, other property markets including Brisbane, Canberra and Hobart will keep rising in value.
So our real estate markets will remain fragmented, but there won’t be a crash.
Despite all the doom and gloom we hear in the media, things will not fall in a heap, we will experiencing an orderly downturn with no signs of forced or desperate selling.
Why am I so confident about this?
Because history is a great teacher!
And history tells us that over time, the value of well-located capital-city properties always go up and investors who stay in the game for the long term always do well.
Sure, there are periods of flat or falling values, but the sceptics who like to warn investors away from real estate always get it wrong.
If you think back over time, the naysayers were always out in force when the property cycle starts to slow down.
I have been investing in property for well over 40 years now and during that time I have been warned about a property crash on numerous occasions, including;
- In 2010-12, when the RBA raised interest rates to slow down the property boom of the time and our markets slumped till rates were eventually lowered again;
- In 2008, when the global financial crisis rocked the world;
- In 2004, when the property markets in Sydney and Melbourne housing values stalled, due to high-interest rates that peaked in late-2003;
- In 2000, when there was a heap of negative press and worry about the impact of the GST that was being introduced in 2001; and
- In the early-90s, when interest rates peaked at 18% and the markets crashed.
As you look back it becomes clear that there is a cyclical pattern to our property markets with the media and ‘clever’ commentators offering lots of reasons not to invest.
But the truth is, we have periods of prosperity and periods of slow or negative growth in the housing market — this has always been and will continue to be the case.
So the big question is …
What will 2019 bring your way in terms of wealth creation and the property markets?