After two years of unprecedented growth, Australia’s property market has changed course, with prices cooling and demand easing across the country.
According to the latest PropTrack data, nationwide property prices dropped 0.11% in May to a new median of $691,000 in what was the first month-on-month decline since the pandemic began.
Prices continued to decline in Sydney (-0.29%) and Melbourne (-0.27%), while prices in Canberra were down for the first time in 3 years.
And monthly price growth has slowed almost everywhere across the country, with regional areas seeing a flat result in May with a mere 0.01% increase for the month.
And there could be more price falls to come with further rate cuts expected throughout the remainder of 2022.
It’s never been more important, then, for property investors to focus on investment-grade properties in the right suburbs – because it is these properties that are able to better weather a market downturn.
As an investor, it’s important to understand that location does most of the heavy lifting for your real estate investment success.
Of course, we already know that most properties are not “investment grade” and without the right, due diligence you could end up buying the wrong property in the wrong area at the wrong time.
This could mean you face years of slow or no growth or worse, no income due to a high vacancy in the area.
And that’s why data such as Finder.com.au’s latest analysis is so interesting.
Their new Property Investment Index has revealed Sydney and Melbourne’s safest and riskiest suburbs for home buyers and investors during the current downturn, with lower-density inner- and middle-ring areas forecast to be top performers.
Sydney’s ‘safe’ and ‘risky’ suburbs
The new Property Investment Index shows that house prices in Sydney’s Cammeray, Redfern, and Wahroonga would be the most resilient suburbs during the downturn.
These suburbs have universal appeal among buyers because of their proximity to the CBD and transport links, good schools, and shortage of available housing.
Higher median house prices in these areas also suggest these suburbs attract higher net worth buyers who would likely be less affected by interest rate hikes and associated increased home loan repayment costs.
Narraweena and Davidson in the northern beaches and Rozelle, Erskineville, and Earlwood in the inner west are also flagged as areas likely to hold their value.
Meanwhile, on the flip side, the data shows that suburbs, where the property is less likely to hold its value, seem to be high-rise construction hubs with an oversupply of apartments.
They included Wolli Creek, near the airport, Olympic Park, and parts of the Greater Parramatta area such as Mays Hill, Harris Park, and Rosehill.
The index also revealed that smaller apartments in outer fringe suburbs (where housing is traditionally larger houses on sizeable blocks) are also expected to be weaker performers unlikely to hold their value as the market quietens.
Melbourne’s ‘safe’ and ‘risky’ suburbs
Finder’s new index reveals that in Melbourne, houses in Alphington, Aberfeldie, and Carnegie show the most potential for maintaining stable prices.
Top 10 highest scoring Melbourne suburbs
The 3 top suburbs are spread across the northeast, northwest, and southeast of the city however what they do have in common is their close proximity to Melbourne’s CBD (7-12km), good transport links, and wealth of amenities.
Similar to Sydney’s top suburbs, the highest-scoring Melbourne suburbs all have a median property price of $1.7 million-$2.2 million suggesting the area tends to attract higher-income buyers who would not be as affected by interest rate rises and could continue paying the high costs associated with home purchases.
Meanwhile, Laverton North and Melbourne Airport are tipped as the suburbs where houses are least likely to hold their value.
Finder.com.au head of consumer research Graham Cooke told realestate.com.au that a common theme among the suburbs set to be more resilient during the downturn was a history of gradual increases in prices.
“A sudden increase over a very short period can be a bad thing as it is not always (sustainable),” he said.
“The best markets usually get consistent growth … often it’s because they are central or close to transport.”
Cooke said it was unlikely the suburbs forecast to be top performers would see dramatic price increases in the short-term because buyer demand in general terms was down.
Instead, top performers were the suburbs where prices were more likely to hold their value rather than increase, he pointed out.
But there’s even more to successful investing than location
It’s important to remember that around 80% of your property’s performance will be due to buying in the right location and the balance by owning the right property, an “investment grade” property that suits the fundamental demographic in that location.
While this recent data reveals areas where the property is expected to hold its value best, this isn’t necessarily where I’d recommend investing.
But even before looking for the right location, make sure you have a Strategic Property Plan to steer you through the upcoming challenging times our property markets will encounter.
You see…property investing is a process, not an event.
Things have to be done in the right order – and selecting the location and the right property in that location comes right at the end of the process.
The fact is, the property you will eventually buy will be the result of a sequence of questions you will need to ask and answer and a series of decisions you’ll need to make before you even start looking at locations.
Long before we talk about a property or the right location with our clients at Metropole, we look at factors including their age, their timeframes, and the desired end results in other words, what do they really want the properties to do – are they looking for cash flow, capital growth, or a combination of both.
And that’s because what makes a great investment property for me, is not likely to be the same as what would suit your investment needs.
So at Metropole, it all starts with helping our clients formulate a Strategic Property Plan which takes into account their surplus cash flow position, their risk profile (for example would they consider undertaking renovations or small development), and whether they currently own a home or are wanting to buy a new home or upgrade their existing home in the future, if they are going to earn more income in the future, or if they’re going to decrease their family income because they’re having a baby, how many other investment properties they own, where they are located and how they are performing plus 35 other considerations.
So whether you’re looking to buy a new home or an investment property and you want more certainty and direction in these interesting times, my recommendation is to sit with an independent property strategist to formulate a plan.
It’s just too difficult to do on your own and I’ve found most investors tend to be too emotionally involved to see their situation objectively.
If you’re a beginner looking for a time-tested property investment strategy or an established investor who’s stuck or maybe you just want an objective second opinion about your situation, please leave us your details here and we’ll be in contact and give you more details about how to book a Strategic Property Plan Consultation.