Australian Property Market: Get Out or Hold On?

One thing I have always said about the Australian Property Market is – if we had a crystal ball we would be sweet. But we don’t and the reality is we don’t know the peak of a market till we look back and see prices have fallen and we don’t know the bottom till we look back and prices have risen.

Should I sell my property now?

It may seem a simple question but the answer is actually different for people with different circumstances and objectives. In this blog and linked video we are going to consider;

• People who are selling and buying something else to live in – what we call Owner Occupiers

• Investors – who are wanting to buy a home or upgrade a home

• Investors – who may have one or several investments and unsure

Let's look at our major cities quickly:

Australian Property Market - major city markets summarised

Sydney has come a long way down, but we are still only in line with the 2015 minor downturn so it would seem there is more to fall

In Melbourne, you can see the steep rise and there is still room to fall towards 2015 averages

Brisbane is and will remain flat, with some hope of a slight rise.

Hobart has had a great run and could be too hot and due for a correction.

Adelaide looks to stay flat or a small fall.

Perth, a market heavily linked to resources is an unknown but should plateau.

Who should sell and who should hold on?

For people buying and selling in the same market, it doesn't really matter too much. The only time it matters is when a market is moving up very quickly and then you should be buying first and selling second.

For people upgrading in a slow market like Melbourne and Sydney, it’s actually a good time to make a move, because those high-end properties can achieve greater discounts.

For those who have property in Hobart, the fact that it is above Perth and Adelaide would be a concern to me, and possibly now would be a great time to cash out, but there is always a risk if you don’t buy back in at the same time.

For investors wanting to upgrade their home, it depends on the equity that you have in your investments. If you have equity, because you can benefit more when upgrading homes in a down-turning market, you could cash in the equity, buy your new home and then borrow against it to re-enter the market. There is the cost of selling those investments and stamp duty when buying back, but I believe this can be justified with the amount you save by upgrading your home, the market still dropping before you buy back in, and the tax benefits of having 100% of your debt on your home tax deductible vs having debt on your home which is not.

If this sounds complicated – it’s because it is. The theory of ‘just buy property and hold’ has worked out for every person who has done it over 30 years, but that doesn’t mean there are not better ways to manage the property market and your properties.

Again, if you have questions on how this works, let me know! Just email me at andrew@propertyassociation.com.au and I am more than happy to explain.

What if I’m a sophisticated investor, what should I do?

For pure Investors – let’s look at the graph again:

For Sydney and Melbourne – it’s too late to get out and now is the time to hold on. When you consider it will cost you 2% to sell and 4% to buy back in, the market would have to fall a further 7% +, and you would have to pick the bottom to be better off. Its just too late.

For Perth, Adelaide and Brisbane, now is also time to hold because the potential drop will not allow you to re-enter the market in a better position.

Hobart I would say is a get out time for investors, you would have done great in the last 24 months and you can cash in and jump into larger markets like Sydney and Melbourne that will outperform Hobart over the next 5 years by more than 6%.

So spending a little more time on our two major cities

What the first graph shows us is that the housing market in Sydney started to go backwards first and that the Melbourne market as I said earlier still has some way to go.

If we look at the 12-month change for both – I think it shows that in the last 12 months in Melbourne there would have been many units settle that sold off the plan at better times – which is why it shows a 1.5% growth. We need to understand there is a lag in the figures for apartments after a boom, because many units sell in a boom and complete in a bust and still settle at those higher prices, so the facts can be distorted.

Housing is a little different as there are many less new houses vs apartments, both in Sydney and Melbourne. From what I have seen I can say that Sydney house prices are basically within 2% of the bottom (unless unemployment hits 6%).

So for Sydney and Melbourne, it looks like it is too late to get out as an investor and its time to hold. Those buying and selling in any market are the safest and if you are upgrading in a slow market take advantage of what you can.

Again, if you have questions on how this works, let me know! Just email me at andrew@propertyassociation.com.au and I am more than happy to explain.