With the exception of Sydney, capital gains performance has been substantially lower this decade (2010-2017) than it was during the previous decade (2000-2010), according to a new report from CoreLogic.
Between January 2000 and February 2007, capital city dwelling values increased by 98.2%. In contrast, capital city dwelling values increased by only 44.9% from January 2010 to February 2017.
“So far this decade, dwelling values growth is less than half that over the same period last decade,” the report concluded.
In Sydney, dwelling values increased by 61.1% between January 2000 and February 2007, compared to 78.3% so far this decade. Values rose rapidly in early 2000 before starting to fall in 2004. Meanwhile in Melbourne, dwelling values increased by 95.6% between January 2000 and February 2007, compared to an increase of 55.1% so far this decade.
According to Cameron Kusher, research analyst at CoreLogic, Sydney and Melbourne were the only cities to record dwelling value increases of more than 25% since the beginning of 2010.
“As a comparison, the weakest growth in values between January 2000 and February 2017 was 61.1% in Sydney, which is actually higher than the growth in all capital cities except for Sydney so far this decade,” he said. “For the remaining capitals, the reality is that since the beginning of the decade there has been very little value growth.”
Why have dwelling values grown at a softer pace this decade?
Ben Kingsley, founding director of Empower Wealth, believes dwelling values have grown at a softer pace this decade than the last because income levels haven’t grown at a rate that would support the borrowing power to match or exceed the previous cycle uplift in the early 2000s.
“Values are getting higher and higher in a monetary sense as opposed to measuring based on percentage terms. So incomes would need to grow at a significantly higher pace to support the ability to borrow money to create the strong demand to push growth percentage to the same levels as the previous decade’s performance,” Kingsley said.
Kingsley doesn’t think the current uplift cycle is going to on for much longer.
“Price or ‘value’ will also be a result of demand vs. supply. Given the regulators’ latest interventions and the banks raising their interest rates, demand will be impacted,” he said.” Yet there is still a strong pipeline of properties to come onto the market in the next 12 to 24 months, so I can’t see this current uplift cycle going on for much longer. How much property prices correct will be a result of how strong the labour market remains. The worse the labour market gets, the bigger correction in some part of the Australian property market.”
Property investors need to adjust their expectations
Ian Hosking Richards, CEO of Rocket Property Group, said that property cycles had become more volatile and less predictable following the global financial crisis. “However, I still remain confident that property is the best asset class for creating wealth, but those who are expecting quick and guaranteed gains in any given market may need to adjust their expectations,” he said.
Richards said that in any given property cycle – whether that is 10, 11 or 12 years – investors can expect around three years of robust growth, with the remaining years of the cycle being much more subdued. “However nowadays even strong markets can go through extended periods of little or no growth, and as Sydney has shown, can also experience extended periods of robust growth,” he said.
Richards recommends sticking to cities with large population bases and the most diverse economies, as well as going for geographic diversity. “I personally have exposure to Sydney, Brisbane and Melbourne, and also major regional centres like the Sunshine Coast. It is unrealistic to expect all your properties to be doing well all the time, but if you have a good spread, at least some of them should be doing well at any given point in time,” he said.
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