Over the past few decades, the Aussie property market has appreciated an average of 7% per year. One or two volatile years won’t matter much in the long run; it’s all about long-term capital growth.
Our in-house Data Scientist and Economist Dr. Kevin Hoang explains why.
Timing and cycle length
The Australian property market is highly volatile in the short-term, but firmly trending upward in the long term.
There have been episodes of rapid gain in values in recent history, specifically, 2002, 2008 and 2010, 2014, 2016, 2020 (pre-Covid); and episodes of rapid decline in 2005, 2009, 2012 and 2019.
However, for long-term holders, it is more important to select the right property in the right suburb than the timing. This is because the property market has consistently appreciated by around 7% per year over the past several decades: one or two bad or good years will be quickly averaged out by the long-term capital growth.
Milk Chocolate has developed a proven framework when acquiring assets, which has generated above-market returns for our clients.
The current boom cycle
The last peak was in 2017, when the Sydney market gained 17% and Melbourne gained 18% compared to the prior year.
At that time, the federal and state governments were concerned about a possible bubble, subsequently, a range of tightening measures were introduced including tax on foreign buyers and tightening the lending criteria. The market then cooled off, declined by 9% in Sydney and 7% in Melbourne in March 2019.
Worried about their overreacted policies, the federal and state governments introduced a suite of measures including the interest rate cut and easing lending criteria. The market quickly picked up until the outbreak of Covid in March 2020.
In fact, the current median prices are just equal to the 2017 peak, indicating there is no gain in the period 2017-2021. This fact strengthens the forecasting that the property market has room to grow in the next 6-24 months.
Taking into account the duration of previous boom cycles, the current one has just begun. There are other heavyweight factors that will further drive the market up in the next 1-2 years:
The re-opening of international borders, scheduled by the end of 2021 will enable mass arrivals of immigrants, tourists and international students, significantly boosting the demand for housing
The low level of new building approvals during the pandemic will likely lead to a shortage of housing in the coming years, making it harder for buyers to secure their purchases.
The RBA has reaffirmed that ultra-low interest rates will stay for the foreseeable future, boosting access to finance and the ability to pay for home buyers.
If Kevin’s got you convinced, we’re ready to help kickstart your investment or home purchase journey, contact us here.
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