Hello everyone, today I am going to talk about "The future trends in the Residential Property market in Sydney". As we all know, it is important to grasp the trends and opportunities if we wish to be successful. No matter whether you want to invest, sell or develop real estate, you’ll need to understand what’s in store for the Sydney property market.
PIA was established more than 12 years ago, based on my knowledge and understanding of the Sydney property market fundamentals and trends. After the global financial crisis in 2008/2009, I proposed the "nine major trends" in residential real estate in Sydney. Since then, most of my predictions have been correct. A number of these trends have become reality, whilst others have revealed further clues.
I want to briefly talk about three key trends here that are closely related to our future.
Trend number one, it is expected that investors will continue to be the major purchasers of residential homes in Sydney.
There is a philosophical concept that is known from quantitative change to qualitative change. Today's housing prices, and the general level of people's wages, have determined who have the ability to own homes (especially true for those who live in Sydney).
No matter what our Government or Politicians promise, no one can make housing prices miraculously become more affordable.
The suppressing measures from Government and the financial sector do not work to make housing more affordable, instead, the converse is true, resulting in an upwards pressure on rental prices. The compounding effect is that it makes it more difficult for first-time homebuyers to pay rent whilst saving for a deposit, pushing their dream of owning their own home further away.
So who will be purchasing property in the future? Largely investors. Whilst there might be many incentives for First Homebuyers, these do not adequately address affordability. Simply put, they can’t afford to buy in the current market. However, experienced investors are wealthy enough to invest in the property market. Many of you may be asking how do they acquire their wealth to purchase property in the first place? I will explain this in the second trend.
It can be predicted that in the near future, the Government will seek help from investors to increase the supply of housing. Banks increasingly want to lend to investors.
1. For many years, Investors have been the largest purchasers of residential real estate in Sydney.
2. Investors contribute largely to solving the housing shortage problem in Sydney.
Trend number two- rental prices and housing prices will rise simultaneously.
Why is this new a trend?
Historically housing prices and rental prices in Sydney have risen interchangeably. The rents rose slowly during the housing surge period and then rapidly during the quiet housing period.
Applying the same philosophy concept of "from quantitative change to qualitative change", when Sydney's absolute housing shortage reaches 60,000 units, Sydney's housing shortage problem will become irreversible. The current housing shortage is above 80,000 . So, no matter how hot the future market is in real estate, the market is still in short supply. In addition, Sydney is the most in-demand city to live in (in Australia). That's why the rents will continue to rise.
First home buyers will find it more difficult to enter the market due to rising house prices and rents, but stagnant wage growth. The rising prices push up the threshold for down payments and higher rents reduce people's ability to save up a deposit. In theory, the simultaneous rise in housing prices and rents will benefit the investor, especially those with multiple properties, through growth in capital value/equity, hence greater ability to purchase. Rising rents increases an investors’ cash flow, and rising housing prices make it easy for them to take the down payment for the next property.
If you do not own a property yet, no matter how high your salary is, the rising housing prices and rents can result in you becoming more financially distressed.
Although there will be about 40,000 new houses in the coming year, it still cannot change the status quo. As there is a substantial drop in sales of uncompleted units in 2016 and 2017, the completion of new units will plummet after 2018 - 2019, which will inevitably lead to a more serious shortage of housing supply.
As a result, there will be a sharp rise in housing prices and rents.
The third key trend is that ‘pension management’ and superannuation companies, will "invade" the residential market.
As I have previously maintained, investors will become the mainstream real estate purchasers in Sydney. The pension management and superannuation companies will become one of the strong investors in the market.
Over the past 12 years, I have shared my thoughts on the residential market in Australia especially in Sydney, with senior executives of many pension companies. All of them were dismissive of the residential market as being commonplace - residential housing was the investment for the ordinary.
Did you know that more than 90% of the owners in Australia's rental properties are ordinary people? Their average family income is only $ 80,000.
In recent years, Government seems to have reconsidered their previous opinion and allowed self-managed super funds to invest into the residential market. However, the large superannuation companies have remained quiet.
Therefore, I predict in the future that pension management companies will have no option but to "invade" and ‘invest’ in this area.
Why are pension Management Companies like a "beast" in the residential housing market? It is because the current total amount of Australian pensions is said to reach more than 400 billion Australian dollars. When potentially large sums of money enter the residential market, this market will be altered dramatically.
At that time, ‘ordinary’ Australians, who could not previously afford to buy, may be further locked out after these changes occur. The pension model will become property purchase, development, rental and holding.
It requires amendment of the relevant legislation, pertaining to pension funds, to enter into the residential market. Government needs to consider the needs of the public as well.
I estimate that the large-scale entry of pension management companies into the housing market may be around and after 2018 and 2019. Because by that time, a further shortage of housing markets will be a good excuse for the entry of pensions. By then, the public opinion and law will pave the way.
These three key trends are expected to trigger a host of other trends that affect everyone involved in residential development, including tenants, owners, investors, intermediaries, developers and real estate financiers.
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