Over the past few months, the conversation around real estate has quickly turned to interest rates and what the impact is likely to be on housing markets.
After a record few years, where house prices increased over 30 per cent in many areas, it’s only natural that the rate of growth might slow down. However, it is important to understand that not all cities, suburbs and even streets will be impacted in the same way.
One of the biggest misconceptions in the property world is that all house prices move in sync with one another. This could not be further from the truth. In reality, Australia contains more than 10,000 small markets all of which have different supply and demand factors that impact their levels of growth differently.
In Australia, most people and the media are drawn toward the Sydney and Melbourne property markets and that’s only natural. They are the largest and most expensive and have also seen some of the biggest gains. Many suburbs across Sydney for example are up over 40 per cent during this latest upswing.
When we see headlines of falling prices, the reality is that it is these two large capital city markets that are the ones that may well be in the firing line most of all. People in these cities are the most indebted with large mortgages and are therefore most sensitive to interest rate rises.
For investors, it’s important to understand that there are still opportunities out there in property markets that will likely not see outsized falls and also locations where prices will continue to grow.
When you look at markets at a micro level, we can see that they are driven by factors that impact the local areas. This might be things like a school catchment zone or new council changes that impact the ability to subdivide and develop in a certain area. Regardless of what the factor is, there are always going to be locations where property demand will outstrip supply and those areas will be able to not only buck the trend of falling prices that we might see in areas of Sydney and Melbourne but continue to rise.
It’s also worth remembering, that when we purchase property as an investment, we shouldn’t be focused on what is likely to happen in the next few months. Property is a long-term game and you need to have a long-term horizon. Home prices have seen steady growth over the last 30 years or more in Australia and a few rocky months isn’t likely to change that trajectory.
At KPI, our focus is on identifying locations that are likely to see growth over the coming years, while also providing positive cash flow to investors. We do this by identifying locations where demand is outstripping supply and then hone in on certain growth pockets of particular suburbs.
This is a way to not only protect yourself from the impact of higher interest rates but you will be well placed to outperform during the next growth phase.
Most of our purchases are currently in Queensland, Western Australia, South Australia and regional locations rather than Sydney and Melbourne. We feel they are locations that are well placed to hold strong over the short term and perform well long term as well as offering strong yields.
These areas will be least impacted by rising interest rates, with many of our clients still sitting on healthy equity positions thanks to the growth we’ve already been able to achieve.
If you’re on the fence about investing in the current climate, understand that not all markets are the same. There are always opportunities to buy in any market, but you do need to invest intelligently.
Unlike what we’ve experienced over the last few years, not all areas are going to perform well in the months and years ahead. It’s more critical than ever that you invest intelligently and have a long-term plan in place.
As I always say, the only bad time to buy property, is later!
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