Using Property Market Cycles to Your Advantage
As a property buyer, it can be difficult to get into the market, at certain times of the property cycle. Take Sydney for instance, where the median house price was sitting at $1,168,806, for the March 2020 quarter (domain.com.au).
The property market in Sydney, has grown 68%, since 2009. If you did purchase a property during this period and held on for the long-term, no doubt you’re now looking back, with a big smile on your face!
However, in 2017, the Sydney property market reached the peak of its market cycle and property prices have since been reducing, as the market pulls back from its boom level pricing.
The following graph, shows Perth has had negative growth since early 2015. We are now looking forward to $65 billion worth of projects, commencing in the north west of the state, which will boost demand in Perth. Companies are looking to expand employment, base FIFO workers in Perth and now, prices appear to be near the cyclical low.
For any property buyer, whether a first home owner, investor or downsizer, Sydney is challenging market to invest in, with its whopping median house price.
Here in Perth on the other hand, we have already experienced significant gains in affordability. As you can see from REIWA’s graph, prices are currently similar to 2006 levels when Perth’s last property boom reached its peak. Our median house price in Perth, is currently $527,322 (domain.com.au May 2020) – about half that of Sydney!
The Point of Maximum Opportunity
We all want a good deal when we buy. Particularly when you’re spending a lot of money on something. And a house is a lot of money!
You get the best deal, when you buy at the best time, in the property market. The “point of maximum opportunity”. That’s when the property market, is near the bottom of its growth cycle where price points, are at their cheapest.
The Property Price Cycle
The Perth property market saw its last boom period during the lead up to 2006, where the market doubled in around 4 years. In 2006, Perth property prices increased by 40%, in that one year alone! If you look at the two graphs above, you can see how the market price cycle ebbs and flows. When Perth was at its peak, Sydney was at its bottom and when Sydney started to recover, Perth moved into its downturn. These cycles are important to understand because ‘timing in the market’, contributes to whether you can ride the next growth wave or get dumped by it.
The point of ‘maximum risk’ in the graph, is when you pay the most for your property and then, get low or negative growth after you’ve purchased. The point of ‘maximum opportunity’, is when you will get the best deals. Not only that, it’s when you are positioning yourself for the growth period, that is likely to follow. That’s positioning yourself for the growth wave, so you can ride it, and receive a solid return on your investment.
So, if you want to set yourself up in the property market, as you can see, it’s vital you buy at the most advantageous time. If you’re a homeowner looking to buy or an investor, looking to set yourself up financially, you cannot get a better deal than buying when opportunity, is at its greatest!
The Perth market is sitting in a quiet phase, off the back of a five-year downturn, with indicators suggesting, we’re sitting around that point of ‘maximum opportunity’. Our previous peak was seven years ago, and the market has been correcting since. We are one of the few Australian capital cities, poised for potential growth, over the next few years. For off-the-plan buyers in Perth, this puts you in a great position. You are able to lock in a purchase price, while the market is quiet, before you even need to pay for the purchase at settlement. A potential bonus of an off the plan purchase, is you may also benefit from any market growth, during the period prior to settlement
As you can see from the graphs above, you don’t get too many opportunities to take advantage of a new property cycle. So, if you’re looking at purchasing a new property, it’s important to understand the market cycles , ensuring you set yourself up to “run with any market growth”, not have another BBQ story, about what you should have done You will also own a brand new apartment in Subiaco!
How to Run in The Right Direction
So, we’ve looked at the property cycles in Australia, more specifically what’s happening here vs Sydney and we can clearly see what happens during both a peak and downturn in the price cycle.
While historic trends, show us there are incredible financial gains to be made, if you know how to time the market, few people actually see and act on that opportunity.
The reality is, most people run with the herd and the herd in property, are the people who are buying at the top of the market. There is genuine fear they will miss out, so they convince themselves, that this is the right time to purchase. It seems smart, when there’s no perceived risk and everyone else is doing it!
Buying at the peak, always costs people heavily because they’ve missed the upswing in the market.
The reality is, the best opportunities come, during the times of ‘doom and gloom’. This is known as counter-cyclical buying and only about 5% of buyers do it because very few people, are able to see the opportunities available.
From a property buying point of view, could we have better conditions to take opportunity by the horns, right now?
If we had a magic wand and we were able to deliver the perfect recipe for a counter-cyclical opportunity, to get set up in the market, we’d request the following:
- Cost of borrowing is low
- Strong rental yields
- Low purchase price point
- A strong upswing in growth is possible after purchasing
So, where do we measure up in Perth?
- Australia-wide, interest rates are at an all-time low ✔️
- Rental yields are currently strong, on many properties, if you buy into the right area. We also have a very tight rental market, with vacancy rates sitting at just 2.8% (domain.com.au) having fallen dramatically from 7.8%, around 24 months ago ✔️
- As we can see from the graphs above, Perth is at a quiet phase in the market, following a protracted downward property cycle and has been reported as one of the best value capital cities in Australia, right now ✔️
- According to ANZ’s latest housing forecast figures, Perth is set to see growth next year and little downside in 2020, from the impact of the coronavirus. WA also recorded a strong start to 2020, with strengthening rental conditions and consecutive months of growth, which are indicative of a potential road to recovery after a five-year downturn ✔️
So Where to From Here?
Once you understand how the market cycles work, the only thing left to consider, is where would it make sense to buy an off-the-plan apartment?
We mostly buy apartments for lifestyle and convenience. If there are no lifestyle attributes in the area and it isn’t well located, then as an investor, the apartments will struggle for growth and limit your rental return, if tenants aren’t attracted to the area.
For apartments, lifestyle and convenience, means being situated within the inner city ring of Perth. The benefit of these areas, is they offer an excellent profile for growth and the tenant demographic, creates a strong rental demand. Let’s take Subiaco for example, with a median house price of $1,150,000 (realestate.com.au May 2020) a development like Halcyon, being priced from just $399,000, allows you to get into Subiaco, at a fraction of the median price. The advantage of this, is you still get to benefit from everything a suburb like Subiaco offers, without paying anywhere near the usually expensive price tag, for this area. From a growth point of view, this puts you in a great long-term position as an investor. For a first homebuyer, this allows you to get into the inner-city market at a great price point, and as a downsizer, this increases your potential to be left with a nice nest egg or extra cash in your hand.
An area like Subiaco is perfect for off-the-plan buying, due to its locality and amenity and with Halcyon being just a stone’s throw away from Rokeby Road, buyers and investors looking for a lock and leave, low maintenance property, are positioned to do well in this high demand area.
There’s another great opportunity here too.
On October 23, 2019, the WA State Government announced a 75% Stamp Duty Rebate of up to $50,000 for pre-construction apartment purchases.
Halcyon Apartments Subiaco fully qualifies for this initiative. In fact, we’ve sweetened the pot even more, by rebating you the remaining 25% of the State Stamp Duty, up to the value of $50,000. This means that your purchase of a Halcyon apartment is, 100% Stamp Duty Free*.
That’s a nice little bonus you get to keep in your pocket!
Plus, if you’re a first homeowner looking to secure a Halcyon apartment, you may also qualify for the $10,000 First Home Owners Grant. This can make a huge difference to your budget and increase your apartment options.
If you’re an investor looking to purchase off-the-plan, you also have the opportunity to get access to an exclusive 5% rental guarantee for 2 years* when you secure a Halcyon apartment. So there is no worrying about securing that all important first tenant, putting you in the guaranteed position, to maximise your cash flows.
If you’re looking to run against the herd mentality and would like some help, to see how you can take full advantage of our current market opportunity in Perth, before the next upswing, go here to contact us today or check out the opportunities we have available for First Homebuyers, Investors and Downsizers.