Why invest in residential property now?

Looking to step into the world of residential property investment? Look no further than Australia’s resilient and thriving residential property market.

With the current economic climate in mind, there has never been a better time to embark on your journey towards financial success.

In this article, we will delve into why investing in Australian residential property is a smart choice and why the time to do so is now.

Weathering economic storms with resilience

When it comes to economic downturns, the Australian property market stands out for its remarkable resilience. While the global economy may experience fluctuations, the Australian residential property has consistently proven its stability.

Unlike other investment avenues that falter in tough times, Australian property has not only maintained its value but also shown growth during challenging periods. In fact, data from CoreLogic reveals that homes in Australia have grown by an average of 5.4% per year (compounding) for the last 30 years – even during major recessions like in 2008.

Strong fundamentals driving the market

Behind this resilience lie the strong fundamentals that make Australian residential property a lucrative investment. Key factors, such as population growth, undersupply, and migration at a time of low vacancy rates have fueled the robustness of the market, creating a favorable environment for property investors.

Australia’s wealth is fundamentally supported by our residential market

Investing in Australian residential property presents a compelling opportunity, as it aligns with the country’s strong economic foundation rooted in its real estate market.

With the total value of Australian residential real estate soaring to an impressive 9.9 trillion dollars and a substantial 56.3% of Australian household wealth invested in this sector, it showcases the resilience and stability of this market.

Such a significant portion of wealth being held in residential property underscores its importance as a wealth generator and protector. Australia’s long-term trend of increasing property values, coupled with a robust legal framework and a stable political environment, makes it an attractive choice for investors seeking to capitalize on the nation’s enduring prosperity.

Population growth driving underlying demand for residential property

Australia’s population is on the rise, growing by 1.9% in 2022, the highest growth rate since 2008, driven by a combination of natural growth and immigration. The federal budget projects a record 1.5 million net overseas migrants to arrive in Australia over the five years to 2026-2027. This number is roughly equivalent to the population of Adelaide!

As more people choose to call Australia home, the demand for housing naturally follows suit. This sustained population growth ensures that the need for residential properties remains strong, creating an advantageous environment for property investors.

Chronic undersupply of housing and tight rental market

The Australian housing market has long grappled with an undersupply of properties, particularly in sought-after locations. A shortage in supply has been driven by a combination of higher interest rates, limited availability of serviced land, higher construction costs and longer lead times for delivering new supply. Approximately 28,000 dwellings were delayed in 2022.

The most recent NHFIC State of the Nation’s Housing Report forecasts a chronic housing shortage with demand expected to exceed supply by 106,300 dwellings by 2027.

This undersupply is a key driver behind the consistent demand for housing, keeping property values buoyant and offering investors a promising outlook for capital appreciation. Moreover, strong rental demand, record low vacancy rates, and undersupply mean investors can benefit from high short-term rental yields.

 

 

Opportunities in high growth regions

The Australian property landscape is characterized by regional fragmentation, with different areas experiencing distinct growth and returns patterns.

This diversity creates a golden opportunity for investors to strategically access various property markets, each at different stages of their individual cycles. Regions like Ipswich and Moreton Bay in Queensland exemplify this potential, as their strategic positions within the property market provide compelling investment growth prospects.

By diversifying their property portfolio across these varied markets, investors can maximise their potential for long-term returns and capitalize on the dynamic nature of Australia’s real estate sector.

Is it better to wait until the time is right in the market?

The Reserve Bank of Australia (RBA) has been gradually raising interest rates since May 2022. These rate increases have put some downward pressure on house prices, creating an opportunity for investors to enter the market at more affordable price points. As mortgage rates eventually decrease and more buyers enter the market, home prices tend to rise again. Nevertheless, it’s crucial to consider the broader, long-term effects.

The more years you hold onto an investment property, the more you’ll experience the market’s ups and downs, ultimately witnessing your property’s value grow. While making a savvy purchase may lead to quicker profits, the key takeaway is this: if you remain invested for two or three market cycles, historical data suggests you’re likely to enjoy substantial gains.

Looking back, historical data indicates that Australia’s housing market goes through phases of growth and decline, but the overall trend over time is one of gradual and steady upward growth.

Investing in residential Australian property is akin to playing the long game. It offers stability, growth opportunities, and promising returns, driven by factors such as population growth, housing supply constraints, and migration trends. However, it’s worth noting that your personal financial situation ultimately shapes your investment decisions.

Make informed investment decisions with expertise and guidance. Start your conversation with Wealth Street and position yourself for financial success today.