Year 2023 will record another record high for residential properties in Australia with the national index increasing by 53% in the 4 years from 2020 – 2023. In a normalised market property prices grow at 4.5% p.a. which means they double every 16 years. To rise by 53% in 4 years leaves the index clearly above the mean and ultimately all markets eventually return to the mean. So, for the next 4 years, property prices will need to flatline in order to achieve that.
Affordability is going to be tested during 2024 which will affect buyer’s ability to bid up the market. Since 2019 variable rate mortgages have risen by 3.6% and that, singularly, has reduced the borrowing capacity of homebuyers by 25%. As an example, for a $1m purchase on an 80% loan will mean the loan will reduce from $800,000 to $600,000 and that $200,000 deficit will reduce the offer made by a like amount. As household savings have now almost depleted, you can expect an adjustment downward during 2024 based purely on affordability.
One of the biggest contributors to inflation is residential rents which is a symptom of a serious undersupply that has no short-term resolution. Unfortunately for tenants, rentals will continue to rise by up to 10% for the next few years and will continue beyond until there is a better balance between supply and demand. We may well be redefining real estate from location, location, location to supply, supply, supply.
On a positive note, the is a sector of the market that must be bought – NOW! I refer to the ‘as new’ retirement apartment that fits the downsizing needs of particularly Baby Boomers. I define ‘as new’ as being any property that has been built or totally refurbished in the period up to the end of 2022 which has avoided the massive cost increases that are now affecting the building industry. Building costs are going to rise by 50% between now and the end of the decade. The market in this sector for the next 4 years is going to be driven by rising costs and in the period after it will be driven by a massive surge of Baby Boomer buyers as they transition from their oversized homes into something smaller, more affordable and secure. 2035 will define the end of 6 decades Baby Boomer influence.
The critical issue is – TIMING. I’ve heard it said by many that now is not the time. There is the potential however for the gap between the property you own and the one you buy to close. If you don’t believe now is the time to move, then at least give consideration to making an investment into this sector that will then give you a ‘foot in the door’ that will capture the rising market of the retirement property which will in some way maximize the gap. As a bonus we should not forget the golden handshake that is available to contribute $300,000 per spouse into super in the process of downsizing. Maximising the gap is here now but will be gone tomorrow.
An example of a property that I define ‘as new’ can be visited on realestate.com.au. The address is Apartment 701/62 Brougham Place, North Adelaide for sale at $2m. This property was built in 2007 but totally refurbished in 2019 the standard is impeccable, the outlook from level 7 is unbeatable and the accommodation of 160sqm equates to $12,500 sqm. Compare this to similar apartments in Lot 88 O’Connell Street North Adelaide, currently under construction, are selling for $15,000 sqm which is the price required to make a profit. The next development of a similar scale will need to get closer to $20,000 sqm to be viable.
As I come to the end of 40 years in real estate, I have come to realise the meaning of loyalty. I have been rewarded with your support, many for most of that time and I say, ‘thank you’.
On behalf of the team at Jackman & Treloar we wish you all a Merry Xmas and a very Happy and Healthy 2024.
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