The influential wealth management firm Bank of America Merrill Lynch has just released a pretty grim forecast for the future of real estate prices across Australia.
In a financial note to its clients widely reported in the Australian media, Merrill Lynch warned that, "A period of weaker price growth or outright modest declines is likely to become entrenched over coming years.”
“We'd expect that such a period could severely test Australians' long love affair with property investment."
Here comes the slump
Broadly speaking, Australia’s property prices are still growing, but only just.
According to the CoreLogic RP Data Hedonic Home Value Index, the annual growth price rate for Australia’s capital cities in the 12 months ending March was 6.4%. Price growth for the same time period last year was measured at 7.4%.
So, while there is still growth for Australian property prices, there’s also deceleration. That’s what’s got Merrill Lynch’s attention.
The financial powerhouse reckons 2016 will see the brakes being pumped more and more for Australia’s property sector, whether it’s the glamour driven markets of Melbourne and Sydney or the resource boom cities of Perth and Brisbane.
So, with the heat looking set to go out of the market, what does this mean for everyday property investors?
Get used to less… maybe
Talk of booms and busts is pretty standard stuff when it comes to real estate in Australia, and Merrill Lynch’s note has certainly got tongues wagging.
But the big picture is that things go in cycles – we’ve had years of rising real estate prices, and now we could be in for years of stagnant or even falling real estate prices.
Anyone investing in real estate knows this and accepts this. It’s the nature of the beast. The key thing is to make the most of the opportunity, no matter which way the wind is blowing.
Who needs a boom?
“This most recent boom in dwelling prices is likely the last one we will experience for some time.” That’s the big takeaway from Merrill Lynch’s recent note to its clients. You can take it as doom and gloom or see a more positive side.
Falling house prices for Australia could mean that a buyer’s market emerges, where properties that were previously too expensive to get hold of come into reach. Or we could see more people building, more people buying and investing in lower priced properties – all creating more opportunities for growth and real estate investment success.
After all, Australia’s real estate sector is still attracting lots of investment – Foreign Investment Review Board recently reported that Chinese investment doubled to 18 billion US dollars in 2015!
What to look for when buying Australian real estate
Buy low. Sell high. Time it right and make a fortune.
That’s the sexy side of real estate – but more realistically, whether it’s a boom or a slump, steady players win the real estate game more often than those relying on the right conditions coming around.
The location of a property, its condition of repair and the quality of its build are the most important things when considering investment, not what the market is doing. If the market is booming and you’ve bought a lemon, you still have a lemon!
No matter when you're buying though it's also wise to have a building and pest inspection carried out that will give you a report detailing a complete picture of the property in question.
Whether it’s a strata property or a standalone building, building and pest or strata inspections in cities like Sydney offer a great way of knowing what you’re getting into, regardless of what the market is doing.
Buy when it’s right for you
Successful real estate investment requires steady nerves and thorough planning. There will always be booms and busts and forecasts of price slumps and rises. That’s par for the course.
While it’s smart to stay abreast of developments, the main thing is to invest in quality properties that suit your investment strategy, not an investment bank making predictions!
By Darel McBride
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