The Australian property market is characterised by its volatility: the national market could go up as high as 25% and shrink as low as -6% over the last few decades.
The growth achieved in the last 12 months amounted to 26%, which broke all previous records in recent decades. It is obvious that this level of price growth is not sustainable due to affordability issues and systematic risks in the financial system.
As a result, in November 2021, APRA has enacted the first tightening policy that raised the level of the buffer by 0.25%, as well as there is growing speculation that the RBA could raise the cash rate sooner than expected. In fact, the 5 years fixed mortgage rate has started to increase to the 5% mark by the major banks, which has materialised the market expectation about the future cash rate.
There is a real likelihood the market will slow down in the next 6-12 months. To what extent property values could fall is important to inform our investment decisions. At the time of uncertainty, it is beneficial to look at the historical patterns: in the last 40 years, the property growth rate only entered the negative growth territory 6 times, while the growth rate stayed in the positive growth territory most of the time.
In addition, the property market is highly regulated by the governments: whenever a burst happens, the government usually throws in numerous stimulus packages to assist the recovery.
Highlights of government stimulus interventions in 2020 under the negative impact of the pandemic:
3 March 2020 - The RBA reduced the cash rate to 0.5% (from 0.75%)
19 March 2020 - The RBA reduced the cash rate to 0.25% (down from 0.5%)
2 June 2020 - The Federal government announces the HomeBuilder grant of $25,000 to support the construction industry to 31 December 2020, with a budgeted cost of $680m
25 September 2020 - The Federal government announces plans to remove Responsible Lending Obligations from the National Consumer Credit Protection Act 2009
3 November 2020 - The RBA reduced the cash rate to 0.1% (down from 0.25% set in April 2020)
30 November 2020 - The Federal government extends the HomeBuilder grants scheme until 31 March 2021 at a reduced rate of $15,000.
To sum up, we believe that we are entering a window of opportunity to source and purchase good value properties when the level of competition is low before the next boom.
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