As we kick-start the new year, here are my predictions for property trends in 2019 – and what they mean for different types of markets.
1. Sharp fall in investor-dominated markets
The investor dominated market tends to be in places like the CBD, or places with high-rise apartment buildings and student accommodation.
Because investors have left the property market throughout 2018, expect a much sharper fall in property values in sectors of this market. A market needs multiple sources of demand to flourish and if a high number of investors leave, it experiences a sharper fall.
In some cases, investors won’t be able to sell. The level of supply of these types of properties is likely to increase. When they feel as though their money is at risk, investors try to get out.
2. Slow movement in the first home buyers’ market
This market includes new residential areas and the outer suburbs, which are predominantly where first home buyers purchase.
This market will experience slower growth and less dramatic change. It won’t be a sharp fall, but there could be no growth for a long period of time.
This is a result of the thinking patterns of a first home buyer. For example, home owners – as opposed to investors – will do everything to “hold onto” their property, like working second jobs or cutting living costs. So, when interest rates rise and properties become more expensive to own, first home owners will hold on for as long as possible. They may experience negative equity where their property is worth less than the debt they owe.
3. Established markets to experience higher demand
The established market is the inner city suburban real estate. People living in these areas don’t have to do anything, they’ll just stay where they are. This market will find its feet a lot quicker than the others as it will have a high demand and lack of supply, resulting in a stronger market.
In Australia, three-quarters of the population live in the 10 largest cities, meaning we have a very urbanised population. Lack of supply of scarce land combined with more consistent demand underpins the value of the inner urban and inner suburban property.
4. Rent will start to climb really quickly
This is because there are no investors buying property. When they stop, it reduces supply. We’re already seeing supply slow down and it will continue to slow throughout 2019.
Rents will climb really quickly. At some stage, rent will get to a peak and all of a sudden become more attractive to investors, who will then come back to the market. Home buyers across middle suburbia will also come back in late 2019 and investors will come in later on when it’s more attractive.
First home buyers will be the last group to come back in the market in 2020.
5. No changes to negative gearing if Labor elected
Because rents are rising, it means that if the Labor government takes federal power it will be under enormous pressure to change its policy on negative gearing.
If rent is skyrocketing the government will need to keep investors in the market, and if it crushes negative gearing, this will most certainly add pressure and deter them from investing. Labor might say the market has already done it for us, so it’s highly unlikely any changes will happen to negative gearing if Labor is elected.