31 January 2019

Property Investment in 2019

Welcome to the New Year

2019 is set to be a big
year on the political, economic and social fronts, with elections, policy
promises, banking commission findings and mixed trends in the property markets
around the country. Whilst the environment may appear challenging and will
deter some influenced by sensational media headlines, in these times it is
important to remember that property investment is long term play. For those in
the position to invest, they may actually benefit from lack of competition in
the market and secure a sound investment.

City outlook: What to
expect across the national housing markets in 2019

Australia has many property
markets doing different things at different times. In 2019, the localised
correction in prices suffered by Sydney and Melbourne won’t necessarily be felt
everywhere else.

Brisbane is likely to
outperform Sydney and Melbourne during 2019, having already started to absorb
the overhang of inner CBD apartment stock. Credit tightening will have less of
an effect, because the gap between earnings and dwelling prices in Brisbane was
less than in the bigger cities, where price-to-income ratios are higher.

Canberra is likely to enjoy
single-digit growth, boosted by a possible change of Federal Government and
boost in numbers of Commonwealth Government public servants.

In Perth and Darwin, where
the local economy reflects the fortunes of the mining economy, the market could
hit their bottom after steady declines over the past four years.

Adelaide is likely to
continue the calm growth it has seen in recent years with 2 per cent gains this
year and next, assuming no major shocks, says Domain Group, majority owned by
Nine, publisher of The Australian Financial Review.

The steam is likely to come
out of Hobart sails after a couple of solid years of unsustainable growth. As
it is a small market it is important to remember fortunes can move in both ways
fairly swiftly.

Long-term returns on
residential real estate

AMP Capital’s chief
economist Shane Oliver acknowledges recent declines in Sydney and Melbourne
would be regarded by many as a property crash, however he says the size of the
decline needs to be put into perspective relative to how much prices rose in
the cyclical upswing. “A 25 per cent plunge in Sydney and Melbourne may
seem like a crash but given the extent of the prior gains it’s arguably
not,” he says.

The property market is
largely driven by the basic economic principal of supply and demand. Supply is
forecast to drop 25% over the next 5 years according to Master Builders
Australia’s (MBA) latest forecast. In a low supply scenario, it won’t be long
before prices rise and reward savvy investors who realise the solid long-term
performance of housing and invest counter-cyclically, i.e. at the bottom rather
than the top. “The fundamentals are still there, the economy is solid, as
is population growth, and interest rates are very low and likely to stay that
way” points out Master Builders Australia chief economist, Shane Garrett.

As one of the most
successful investors of all time, Warren Buffett famously states, “Be
fearful when others are greedy and be greedy when others are fearful.”
Regardless of dramatic media headlines, elections, tax reform, lending
environment, GFCs, recessions and whatever else may transpire, property has
always proved a solid investment if a long-term view is adopted.

is an interesting graph showing the comparison between some asset classes over
a long period (90 years).

looks like shares and residential property have had a similar result ~11% p.a,
with property being far less volatile along the way.

attractive feature of property is the superior ability to leverage, i.e. borrow
funds up to 80-90% against the value of the property. Even at a low level of
gearing this would promote property to be a far higher return on

with any leverage, results can be amplified the other way too, therefore asset
selection and research are vitally important.

Is 2019 a good year to
invest in property?

The consistency of growth
in the long-term graph shows it can always be a good time to invest in
property, if held for a substantial period. However, you must also make sure
2019 is a good year for you to invest, here is a short checklist:

  • Do you have a clear understanding of your strategy? What are your goals for the investment, price budget, cash flow requirements, do you need diversity in your portfolio etc?

  • Do you have the ability to borrow funds and the deposit ready? The lending market is constantly changing so it is vital to speak with a mortgage professional who can find the right product for your situation.

  • Do you have buffers or a contingency in place to cover any shortfall on the property expenses? Make sure you understand how the cash flow works on an investment property and you have surplus funds available and adequate insurances in place such as personal income and landlord’s insurance.

Sound Property appreciates that property investment should not be a ‘one-size-fits-all’ approach, and as such we offer personalised strategies based on a client’s goals, financial situation and risk profile. Our fully licensed team has experience in the residential and commercial sector, property syndicates, developments, and rural transactions.

We look forward to assisting with your property requirements in 2019.

Want to see how your income is impacted before you make your next property investment?

Sound Property’s FREE Cashflow Calculator combines the rental revenue and operating expenses of a property investment to measure the change in your weekly and annual income.


This article is provided for general information only and does not constitute personal advice, as it does not take into consideration your personal circumstances. Please consult a licensed tax or financial advisor before making any decision to invest. Past performance is not a reliable indicator of future performance.