How The A$ Will Impact Property Prices

The Australian property market has clicked into a two speed market again, only this time it’s being led by Sydney and Melbourne. Confidence is sky scraper high and homeowners continue to price property as if interest rates will never go up again.

Naturally, there is much conjecture about whether or not Sydney and Melbourne can continue growing at these rates.

Beyond normal population growth, both markets have been defined and driven by an unusual confluence of factors – namely historically low interest rates, a massive injection of funds from SMSF’s, and unprecedented foreign investment.

So what will push this market higher beyond the influence of interest rates.

Welcome Home Expat!

As the Australian dollar falls to new lows, house prices have become relatively cheaper for expats who have been working abroad. Expats have not seen prices this affordable since the GFC when the Australian dollar (A$) was $0.63. [1]

It is therefore possible expats could give the property market another push or at least give it some underlying support…in addition to interest rates.

Investors Exit

Every action has an equal and opposite reaction. Every cause has an effect (Emerson).

As property prices continue to rise (cause), investor rental returns (yield) begin to drop (effect). To put this into perspective, rental yields for new investors have dropped from 4-5% net (after expenses, before tax) in 2012 to under 2% in 2014. [2]

This means many investors and superannuants can now get a similar (or better) return from the bank with less risk to their capital. And that’s in a low interest rate environment.

Water is now beginning to find its own level again.

Therefore, unless investors can be assured of further capital gain in this market, they will begin to think twice. Property investors are not as ‘sticky’ as homeowners.

And that will be the key in 2015, property performance will be determined by confidence. The question is, what could shake the confidence out of a market made of bricks and mortar?

I’ll tell you next week.

Have a great week!

Adam

p.s. Happy 21^st birthday to Shahab Sayyad. If you’re not the next Jamie Oliver then I want to see the person who is.

Watch this space everyone. This bloke is a gun! By age 14 he could cook any meal for his Mum and brother. And every night when his Mum arrived home from work (usually a double shift), he would greet her at the front door with a big hug before serving dinner. And he still does. Good footballer, great saver, champion bloke. Happy Birthday Shahab!

Source: [1,2] Harris Partners, Balmain

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This information has been prepared without taking into account your objectives, financial situation or needs. Before making a decision based on this material, you should consider its appropriateness in regards to your objectives, financial situation or needs. You should seek advice about how the relevant laws impact on your particular circumstances. Suncow Wealth Pty Ltd is a Corporate Representative No.441116 of AFSL 393254.