What factors affect the Australian property market? This article examines six things you have to consider when creating your strategy.

The property market is such a complex thing.

So many different factors affect it. Even a minor change in one area can cause fluctuations in prices and affect your investment strategy.

The good news is that these changes tend to even out over the long term. 

But in the short term, any number of factors could affect the income and growth of your investment property.

And that could spell serious trouble for your cash flow.

Education is the key to creating a great investment strategy. That’s what Tom and Donna discovered with Wealth for Life:

In Tom and Donna’s case, they had the mindset that all debt is bad debt.

That’s a damaging mindset to have as an investor. They only saw the issues with that mindset when they attended Wealth for Life’s “Real Money, Real Estate” seminar.

The right education opened the door for them to start building their property portfolio.

Education is exactly what this article aims to provide. Here are six factors that drive the Australian property market.

Factor #1 – Migration Trends

The flow of people in and out of a location has a massive effect on property prices.

The Australian Parliament released a report that demonstrated this.

Wealth for Life migration
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Its A Good House is Hard to Find: Housing Affordability in Australia says:

“About half the growth in households in Melbourne is attributable to overseas migration. When you push out the 30-year projection, as you get near the end of it, about 80% of the growth is attributable to migration.

In Sydney, all the growth in households is attributable to overseas migration.”

That was back in 2008, but the point still stands.

People moving into a location creates demand. More demand means that sellers can command higher prices for their properties.

Of course, the opposite happens if people start moving away from the location.

That’s why you have to look at the migration trends before buying an investment property. If people have started to leave in droves, you may struggle to command high enough rents.

Plus, the property may not experience capital growth.

But if the economic situation is such that it pulls people into the location, you’re likely onto a winner.

Factor #2 – Governmental Policies

When a new party comes into power, they’re likely going to want to introduce a few new policies.

These can have serious implications for the market. Such will be the case if Labor succeeds in getting rid of negative gearing for established properties.

As Wealth for Life founder Anthony Peluso puts it:

Wealth for Life Government policies
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“Should they put this in play, and even though they’re restricting it to just established property, you’re going to have what happened back in the eighties. Investors will start to increase their rents. So, you’re going to have a rental market where rents are going to skyrocket.”

In this case, higher rents means fewer tenants, which could lead to increased vacancy rates. That’s bad news for investors.

This is just one example of a policy having an impact on the property market.

Economic policies could also impact inflation and interest rates. This affects lending, which impacts buyer confidence and could prevent people from buying.

Simply put, the actions of the government can reverberate through the entire industry.

Factor #3 – Population Growth

Population growth has a similar impact to migration trends.

Wealth for LIfe population growth
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The more people that come into the country, the higher the demand for property. This can allow sellers to raise prices and investors to raise rents.

On the flipside, a shrinking population reduces this demand. This creates a buyers’ or renters’ market that sees prices start to fall.

That’s the basic idea. However, population increases alone don’t cause prices to increase.

The most recent figures from the Australian Bureau of Statistics prove enlightening here. They say that June 2018 saw Australia’s population increase by 1.6% compared to June 2017.

We saw increases in every state and territory barring the Northern Territory.

Yet property prices cooled in 2018, particularly in Sydney and Melbourne.

So, population growth has an impact. However, you have to consider it in conjunction with the other factors on this list.

The credit availability issue may have played a part here…

Factor #4 – Credit Availability

If borrowers can’t borrow enough money, they can’t buy property.

It’s really that simple. Sellers either stick to their guns and wait it out or they drop their prices to match the market.

Wealth for Life credit
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The cooling we saw in Sydney and Melbourne in 2018 offers an example of how credit availability can affect the market.

In the years before, the Australian Prudential Regulation Authority (APRA) created several regulations. These generally focused on making it more difficult for investors to get interest-only loans.

Investors had to meet tighter criteria and banks faced more restrictions. This meant fewer investors got access to credit, which may have decreased demand.

As a result, we saw prices falling in the current property investment strongholds.

Of course, looser lending criteria makes it easier to access credit. This often leads to an influx of buyers into the market, which can cause growth.

Factor #5 – Income/Wage Growth

Consumer confidence affects the property market like it affects any other market.

When people earn more money, they’re more likely to make larger purchases. Property is one of the largest purchases that someone could make. Plus, it commits the buyer to a loan for 20 or 30 years.

That means they have to feel confident in their ability to service that loan while handling all of life’s other expenses.

Wealth for Life wage growth
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A shaky economy shatters that confidence. Potential buyers may decide to continue living with family or to rent instead. This drives down demand for property, which can lead to sellers reducing their prices.

Wage growth also affects other factors on this list. Consistent wage growth has an influence on interest rates, which also influences property prices…

Factor #6 – Interest Rates

Low interest rates encourage buyers to enter the market. They get more affordable access to credit, which means lower monthly repayments on their home loans.

Combined with wage growth, this increased access improves buyer confidence. And more buyers in the market means that sellers can raise their prices.

Again, the opposite occurs if the national interest rate increases. Banks tend to fall in line with the Reserve Bank of Australia’s cash rate. When that increases, the banks tend to up the interest rates they add to their loans.

Of course, this makes it harder to access the loans, which leads to dwindling demand. We’ve already established what sellers have to do when this occurs.

Since August 2016, the RBA’s cash rate has stood at 1.5%. This is a fairly low rate, which likely played a part in Australia’s rising property prices throughout 2017. It’s only when other factors came into play that prices started dropping again.

Trying to predict what direction the rate will go in is a difficult task. It’s likely that the RBA’s cash rate will rise at some point. When that point will be is still up for debate and several of the factors in this list could influence it.

Create Your Property Strategy Today

Individually, each of these factors has the ability to affect the market.

But it’s only when you consider all of them that you get a true picture of where the market’s heading.

Wealth for Life’s experts can help. We’re all investors ourselves so we understand how the market can fluctuate.

And we can build strategies that protect your investments from those fluctuations.

Would you like to get started? Contact the team today to arrange a strategy session.

What factors affect the Australian property market? This article examines six things you have to consider when creating your strategy.

The property market is such a complex thing.

So many different factors affect it. Even a minor change in one area can cause fluctuations in prices and affect your investment strategy.

The good news is that these changes tend to even out over the long term. 

But in the short term, any number of factors could affect the income and growth of your investment property.

And that could spell serious trouble for your cash flow.

Education is the key to creating a great investment strategy. That’s what Tom and Donna discovered with Wealth for Life:

In Tom and Donna’s case, they had the mindset that all debt is bad debt.

That’s a damaging mindset to have as an investor. They only saw the issues with that mindset when they attended Wealth for Life’s “Real Money, Real Estate” seminar.

The right education opened the door for them to start building their property portfolio.

Education is exactly what this article aims to provide. Here are six factors that drive the Australian property market.

Factor #1 – Migration Trends

The flow of people in and out of a location has a massive effect on property prices.

The Australian Parliament released a report that demonstrated this.

Wealth for Life migration
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

Its A Good House is Hard to Find: Housing Affordability in Australia says:

“About half the growth in households in Melbourne is attributable to overseas migration. When you push out the 30-year projection, as you get near the end of it, about 80% of the growth is attributable to migration.

In Sydney, all the growth in households is attributable to overseas migration.”

That was back in 2008, but the point still stands.

People moving into a location creates demand. More demand means that sellers can command higher prices for their properties.

Of course, the opposite happens if people start moving away from the location.

That’s why you have to look at the migration trends before buying an investment property. If people have started to leave in droves, you may struggle to command high enough rents.

Plus, the property may not experience capital growth.

But if the economic situation is such that it pulls people into the location, you’re likely onto a winner.

Factor #2 – Governmental Policies

When a new party comes into power, they’re likely going to want to introduce a few new policies.

These can have serious implications for the market. Such will be the case if Labor succeeds in getting rid of negative gearing for established properties.

As Wealth for Life founder Anthony Peluso puts it:

Wealth for Life Government policies
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

“Should they put this in play, and even though they’re restricting it to just established property, you’re going to have what happened back in the eighties. Investors will start to increase their rents. So, you’re going to have a rental market where rents are going to skyrocket.”

In this case, higher rents means fewer tenants, which could lead to increased vacancy rates. That’s bad news for investors.

This is just one example of a policy having an impact on the property market.

Economic policies could also impact inflation and interest rates. This affects lending, which impacts buyer confidence and could prevent people from buying.

Simply put, the actions of the government can reverberate through the entire industry.

Factor #3 – Population Growth

Population growth has a similar impact to migration trends.

Wealth for LIfe population growth
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

The more people that come into the country, the higher the demand for property. This can allow sellers to raise prices and investors to raise rents.

On the flipside, a shrinking population reduces this demand. This creates a buyers’ or renters’ market that sees prices start to fall.

That’s the basic idea. However, population increases alone don’t cause prices to increase.

The most recent figures from the Australian Bureau of Statistics prove enlightening here. They say that June 2018 saw Australia’s population increase by 1.6% compared to June 2017.

We saw increases in every state and territory barring the Northern Territory.

Yet property prices cooled in 2018, particularly in Sydney and Melbourne.

So, population growth has an impact. However, you have to consider it in conjunction with the other factors on this list.

The credit availability issue may have played a part here…

Factor #4 – Credit Availability

If borrowers can’t borrow enough money, they can’t buy property.

It’s really that simple. Sellers either stick to their guns and wait it out or they drop their prices to match the market.

Wealth for Life credit
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

The cooling we saw in Sydney and Melbourne in 2018 offers an example of how credit availability can affect the market.

In the years before, the Australian Prudential Regulation Authority (APRA) created several regulations. These generally focused on making it more difficult for investors to get interest-only loans.

Investors had to meet tighter criteria and banks faced more restrictions. This meant fewer investors got access to credit, which may have decreased demand.

As a result, we saw prices falling in the current property investment strongholds.

Of course, looser lending criteria makes it easier to access credit. This often leads to an influx of buyers into the market, which can cause growth.

Factor #5 – Income/Wage Growth

Consumer confidence affects the property market like it affects any other market.

When people earn more money, they’re more likely to make larger purchases. Property is one of the largest purchases that someone could make. Plus, it commits the buyer to a loan for 20 or 30 years.

That means they have to feel confident in their ability to service that loan while handling all of life’s other expenses.

Wealth for Life wage growth
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

A shaky economy shatters that confidence. Potential buyers may decide to continue living with family or to rent instead. This drives down demand for property, which can lead to sellers reducing their prices.

Wage growth also affects other factors on this list. Consistent wage growth has an influence on interest rates, which also influences property prices…

Factor #6 – Interest Rates

Low interest rates encourage buyers to enter the market. They get more affordable access to credit, which means lower monthly repayments on their home loans.

Combined with wage growth, this increased access improves buyer confidence. And more buyers in the market means that sellers can raise their prices.

Again, the opposite occurs if the national interest rate increases. Banks tend to fall in line with the Reserve Bank of Australia’s cash rate. When that increases, the banks tend to up the interest rates they add to their loans.

Of course, this makes it harder to access the loans, which leads to dwindling demand. We’ve already established what sellers have to do when this occurs.

Since August 2016, the RBA’s cash rate has stood at 1.5%. This is a fairly low rate, which likely played a part in Australia’s rising property prices throughout 2017. It’s only when other factors came into play that prices started dropping again.

Trying to predict what direction the rate will go in is a difficult task. It’s likely that the RBA’s cash rate will rise at some point. When that point will be is still up for debate and several of the factors in this list could influence it.

Create Your Property Strategy Today

Individually, each of these factors has the ability to affect the market.

But it’s only when you consider all of them that you get a true picture of where the market’s heading.

Wealth for Life’s experts can help. We’re all investors ourselves so we understand how the market can fluctuate.

And we can build strategies that protect your investments from those fluctuations.

Would you like to get started? Contact the team today to arrange a strategy session.

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