Property Investment in Australia

Property Investment in Australia

Introduction

Over the past few decades, people have come to the realization of investing in properties such as real estate. This is due to the fast-rising demand for residential housing, office apartments and business stalls and malls globally by the world’s growing population. According to a recent survey, Australia has been ranked as one of the stable countries for property investment worldwide due to the fact that it has proved to gradually increase their property price growth within a period of 25 years by avoiding recession (Baum & Crosby, 1).

Apparently, this has not been witnessed in not only one or two locations in the country but also in almost all the parts of the country. Property investment in a certain area is influenced by several economic indicators which are mandatory to be considered if one wishes to invest. For instance, investing in Australia will be more advantageous since the country’s economy is growing day by day recording up to 2.3% increase in Gross Domestic Product implying an increase in economic growth over the year. This has been geared up by property markets due to its demand-led performance in the recent years leading to a rising economy growth rate.

Moreover, the country has tried in decreasing the rate of unemployment by achieving almost 5 % employment rate. Additionally, the country has recorded a great increase in population from 18 million in 1998 to almost 25 million in 2018. Pursuing this further, some key economic drivers such as demand in residential housing, housing trends, retail trade, population and the GDP are significantly essential to be punt under construction for property investment. The main objective of this report is to give a detailed information on understanding the property market in the cities of Hobart and Brisbane to a client (Jane Doe) of Lloyd’s Holdings.

Market Research

Australian Property Market

Over the past 20 years, residential properties in Australia have been influenced by the population growth and the changes in indebtedness. Since the 45% fall in rates of mortgages between 1998 and 2002, the home pricing has been low with the rates of private banks ranging below 3% (Baum & Crosby, 1). Housing affordability in Australia has been gradually declining over the years since the early 1980’s with Sydney recording the greatest decline. Generally, affordability differs between towns and cities. For instance, in a survey conducted in March 2016, the nominal median house pricing in Sydney ranged at 900,000 $, almost five hundred thousand USD in Brisbane, five hundred and sixty thousand in Canberra and lastly three hundred and eighty thousand USD in Hobart (Baur & Heaney, 1).

In addition, the rise in prices is being promoted by the declining levels of home ownership. Currently, the renting rates are at 31% forcing private renters to spend almost 21% of their gross household income while mortgage owners spend 15%. The national vacancy rate for residential housing is gradually decreasing from 2.5% in 2016 to 2.25% in 2018 with the major cities such as Sydney and Melbourne recoding slightly lower rates such as 1.6%. the demand and supply curve of residential housing in Australia is worrying since most of the places are experiencing oversupplies due to lack of housing shortages (Guest & Rohde, 317). Most of the housing surplus is experienced in the interiors of Brisbane, Melbourne, and Sydney not forgetting the mining areas of Western Australia and North Queensland. Furthermore, housing shortages are experienced in the central and outer-rings of major cities such as Sydney.

Brisbane Residential Property Market

Brisbane is one of the major cities in Australia offering vast housing of residential housing options like apartments, townhouses, shared accommodation apartments and many others (Baur & Heaney, 1). About two to three decades ago, Brisbane housing prices were relatively lower than the today’s pricing. The hike in these prices has been driven by the higher cost of land in the area. Besides, the rate of housing affordability deteriorated slowly since the 1980’s but came to a point of stability in the year 2010. Over the past few years, in terms of household income of the people across Queensland, the housing affordability has improved for medium households in both mortgages and rental housing. However, it raises a challenge for the young people and low-income earners.

Undoubtedly, the rental rates in Brisbane have increased over the years since the rate of home ownership has dropped significantly from 49% to 42% due to high mobility issues among the young people. Rental prices in the city’s suburbs have hiked due to quality properties and new developments in the areas. Also, weekly renting has hiked with about almost 20% from the median rent, for example, a weekly rent in Burpengary is at 370$, 390$ in Durack, 410$ in Logan Reserve and 500$ in Chapel Hill. Consequently, Brisbane has a limited supply of residential dwellings but a high demand recording a vacancy rate of 3% since only 154 dwellings have been erected in the past 5 years (Baur & Heaney, 1).

Hobart Residential Property Market

Hobart city is generally known for its average housing pricing hence a great place for an individual with an affordable investment option. This city has been making headlines in the property market due to its increase in home prices by 12 %. The core driver of the high pricing was due to increased demand for residential housing in Hobart. The median home pricing has shot by 7% to almost 500,000$. (Guest & Rohde, 310) Other factors which have influenced the hike in the prices include the fast-growing population, tourism market, and booming university students.

Currently, the city is experiencing a vacancy rate of 0.4% suggesting that the demand for rental housing is higher in the city. Additionally, housing affordability has fallen to the lowest point ever in history due to the escalating levels of unaffordable rents making the residents to spend 35% or more of their salaries on rent, for instance, an average weekly rent goes for 450$ which is higher than in the mainland.

Market Comparison and Outlook

The property market in the two cities is extremely different since the pricing, vacancy rates, demand and supply of residential housing have a difference. For example, the vacancy rate in Hobart is lower than that of Brisbane suggesting that the demand for housing in Hobart is higher hence the escalation in pricing up to almost 500$. This is due to more factors affecting the market outlook in Hobart than in Brisbane such as the rising population of university students and tourists. Hobart has been ranked higher in the market outlook than Brisbane even though it is smaller than Brisbane since its demand and pricing is shooting higher at a very high rate. About 4% of the investors in Hobart are putting in consideration the essence of the property clock by delaying the selling of their properties waiting for the perfect time to sell them hence the difference in the market of the properties between the two cities (Baur & Heaney, 1).

Some of the advantages of overseas property investments include the presence of greater diversification due to fluctuating economic conditions in different countries, potential high rental yields and returns due to increased demand and less supply. Moreover, they are easier to finance at lower costs due to high taxation in the current country of residence. Finally, one is entitled to tax benefits while living abroad.  Nevertheless, some of the drawbacks include the emergence of economic instability which can lead to huge losses, difficulty in understanding real estate laws since they differ from city to city with some being even more complex than expected. Also, currency risk can affect residential housing negatively since currency is entitled to drastic changes (Guest & Rohde, 305).

Conclusions and Recommendation

In conclusion, from the property investment market knowledge discussed above, I would recommend that Jane Doe should invest in Hobert because the market outlook of that city is more promising than the one at Brisbane. This is due to the fact that, for her to make more returns and profits, she should consider the place with an overwhelming market. Hobert’s population is growing due to the presence of a university and the constant visitation of tourists. Although the land prices in the city of Hobert is higher than Brisbane, she is entitled to make more profits once she invests than in Brisbane.

References

Baum, A.E. and Crosby, N., 2014. Property investment appraisal. John Wiley & Sons.

Baur, D.G. and Heaney, R.A., 2017. Bubbles and Crashes in the Australian Residential Property Market.

Guest, R. and Rohde, N., 2017. The Contribution of Foreign Real Estate Investment to Housing Price Growth in Australian Capital Cities. Abacus, 53(3), pp.304-318.