There's little doubt that 2019 was a rollercoaster of a year for the Australian property market, but if you’re curious about what 2020 could bring to the property market and what investors plan to do, Your Investment Property editor Sarah Megginson and property commentator and investment advisor Michael Yardney unpack the latest result of this year’s Property Investment Sentiment Survey.
More than 1800 respondents took part in this year’s Property Investor Sentiment Survey, Australia’s largest survey of property investors. The annual survey is run by Your Investment Property, Australia’s only independent property investment magazine, PropertyUpdate, Australia’s #1 property blog; and onthehouse, a Corelogic company.
So what were the biggest takeaways?
New Year, new hope
Investors who participated in the survey are optimistic about their plans for 2020.
A whopping 42% said they plan to buy a property in the next 12 months. Forty-one percent said they would buy a house, while 31% would purchase a property with potential add value.
Forty-three percent of the respondents also said they would buy an established property, while 35% would buy a property with value-add potential (renovation or development).
Only 7% would buy an apartment as an investment property.
Yardney says this isn’t surprising.
“(There) is a lot of negative news about apartments, especially new ones, the high-rise one, the ones with structural problems. And apartments haven’t performed as well as a house,” he says.
2019 has been difficult for apartment owners and continues to unfold with the Opal towers issue in Sydney, adds Megginson.
“I wouldn't be investing in an apartment without really clear, strategic advice from someone who can guide you in the right direction there, because it can go wrong a little bit too quickly,” she says.
Many investors are hopeful for price growth in 2020.
Forty-four percent of investors surveyed said property prices in 2020 would increase by 0-5%, while 18% think it would increase by 5-10% and 15% said prices would remain steady.
This sentiment is echoed by a recent ME Bank report.
“After a period of price declines in Australia's key property markets, consistent house-price increases over the past three months have created a much-needed period of stability, providing more certainty that early price increases weren't simply a blip in the data," said Andrew Bartolo, ME Bank's general manager for home loans.
Housing loans issued to first-home buyers would likely moderate as investor activity picks up and prices rise, according to CoreLogic.
"Housing prices are once again rising across most regions of the country while growth in household incomes remain sluggish, which will create renewed housing affordability pressures in markets where home values are rising faster than incomes," said Tim Lawless, CoreLogic head of research.
The best capital growth in the next five years
For investors, Melbourne is the area with the best capital growth prospects in the next five years, with 39% of respondents picking the Victorian capital as their preferred investment location for growth. It is followed by Brisbane and then Sydney.
Nineteen percent also cited regional Australia as an area with potential capital growth in the next five years.
However, the timing of the survey has definitely impacted the results.
“If we had done this survey even six months ago, I think we would've had wildly different results because six months ago, we were in the middle of a federal election and so much was up in the air. This year in particular has just been such a roller coaster for property investors,” Megginson says.
Thirty-five percent of investors surveyed said a detached house on a suburban block in an inner middle ring capital city suburb would make the best investment over the next five years.
On the other hand, 25% said a property with value-add potential would make the best investment, while 11% voted for a detached house on a suburban block in an outer suburban growth corridor as a great investment.
But Yardney cautioned about these types of properties.
“They're not where we are going to get as much capital growth because the abundance of supply is the enemy of capital growth. They are growth corridors, population growth, but not necessarily capital growth,” he says.
Despite hopeful plans for the upcoming year, investors still face a few hurdles preventing them from purchasing more investment properties.
Forty percent of those surveyed said tighter bank lending policies to investors affected their ability to purchase another property.
Twenty-six percent also cited difficulty with loan serviceability as another factor that hinders them from buying their next investment.
“Despite the lower interest rates, it’s still the banks tighter lending serviceability criteria that’s creating the problem”, says Yardney.
Uncertainty about the economy and not having enough deposit or equity were also cited as road blocks hindering the purchase of another property for investment.
When asked whether now a good time to fix interest rates is, 50% of the respondents said no, while 30% thinks it’s time. Nineteen percent were uncertain.
What is your end game?
For many, investing is a way they could better provide for their loved ones.
Forty-three percent said they are investing to provide a better lifestyle and more choices for their family, while 41% said it’s so they could be a self-funded retiree. Thirty-eight percent cited getting to retire early and having more choices as a reason for investing.
Thirty-seven percent also said their property “end game” is to live off rental, while for 23%, it’s to sell down all or some of their property investments. Eighteen percent said their end game is to hold their properties and never sell.
But investment isn’t only just an option to fund retirement, as wealth and property may create better choices for investors.
“What I encourage our readers to do, whenever we're putting stories together about building wealth within the magazine, is to really focus not on the word retirement or the concept of retirement, but on the concept of choice. Because to me that's what wealth and property is all about. It's about creating choice,” Megginson says.
Thirty-two percent of the respondents said they would not ask anybody for investment advice moving forward.
According to Yardney, if you want to outperform the average property investor, you should be asking somebody for advice.
You only need to have one bad experience with property to then become very down on it, Megginson adds.
“Who you get your advice from can shape your financial future and advice can come very subtly in the form of well-meaning friends and family who don't know what they're talking about, who encourage you in a certain direction, which can lead you down the wrong path,” she says.
The Property Investment Sentiment Survey covers more than 20 questions about property investment, gauging how investors feel about the current real estate markets and what they plan to do for next year. For full insights as to the results of the survey, listen to the podcast here.