Michael Yardney, director of Metropole Property Investment Strategists, looks at the likely game changers in the year ahead, what strategies to adopt, and which to avoid.
I see the following game changers impacting the property market in the next 12 months:
1. Falling consumer confidence
I expect to see consumer confidence falling in the first half of 2015, and this will have a negative impact on our property markets.
The problem is Australians will keep hearing negative news about world problems – China's economy slowing down, the European economy being a basket case, deflation around the world, etc.
Locally, we will be worried about rising unemployment, a weak economy, and a government that can't deliver its budget.
With these factors combined, the media is likely to be filled with negative comments that will further scare consumers into holding on to their cash and not spending, especially on big-ticket items such as upgrading their homes or buying investment properties.
2. Macro-prudential controls limiting investor finance
3. Changes in the ability of self-managed super funds to borrow to buy property investments (as recommended by the Murray Inquiry)
4. Lower overall capital growth, more in line with the rise in wages or disposable income, meaning that investor mistakes cannot be covered up by strongly rising markets.
How would you ride them out?
• Falling consumer confidence is likely to be reflected in lower buyer demand for properties, and this could be a good opportunity for investors with a long-term focus.
• I see a window of opportunity for property investors to take advantage of a time when others are sitting on the sidelines.
What strategies wouldn’t work in 2015?
1. Hotspotting
In other words, looking for ‘get rich quick’ locations. On the other hand, this never works if you look at the history of previously touted hotspots such as Warren Barton, Port Headland, Gladstone and Cairns.
2. Buying generic apartments in large, high-rise, off-the-plan projects
There is an oversupply of this type of property looming, especially in Melbourne, Brisbane and Sydney. This will limit capital growth and rental growth.
3. Buying house and land packages in the outer suburbs of the capital cities
These, typically first home ownerlocations, are likely to underperform because people living in these locations are already struggling a little with their mortgages and are likely to continue to do so next year as our economy stumbles along and wages growth remains low.
4. Buying properties in regional australia with economic growth is likely to underperform the powerhouse economies around the capital cities.
5. Buying properties in mining towns where investor demand has waned
Top 6 Tips for Maximising Your Portfolio in 2015
To ensure I buy a property that will outperform the market averages, I use the following strategic approach:
1. Buy a property that will appeal to owner-occupiers – not that I plan to sell my property, but because owner-occupiers will buy similar properties, pushing up local real estate values. This will be particularly important in 2015 when the percentage of investors in the market is likely to diminish.
2. Buy a property below its intrinsic value
That’s why I avoid new and off-the-plan properties that come at a premium price.
3. Buy in an area that has a long history of strong capital growth
These areas have the fundamentals to support growth that will continue to outperform the averages because of the demographics in the area.
4. Buy where more owner-occupiers will want to live because of lifestyle choices – where the locals will also be prepared to, and can afford to, pay a premium price to live because they have higher disposable incomes. In general these are the more affluent inner- and middle-ring suburbs of our big capital cities.
5. Look for a property with a twist – something unique or special, different or scarce about the property.
6. Buy a property where i can manufacture capital growth through refurbishment, renovations or redevelopment, rather than waiting for the market to deliver me capital growth.
