Australia is one of the largest land masses on the planet and the sixth largest country behind Russia, Canada, the US, China and Brazil. It has a land area comprising more than 7.5 million square kilometres and is about twice the size of Europe.
While the majority of Australia’s populace lives in major coastal cities, it’s not surprising that the sheer geographical size of our country means we have a diverse housing landscape, influenced by a range of both national and local economic and social drivers.
Whether looking at capital city performance as a whole, specific suburbs or even specific streets, it’s important to acknowledge each property market has its own ebbs and flows. That is, each market has as a different cycle, subject to many combinations of factors including affordability, supply, employment and, importantly, confidence, which makes predicting future market performance tricky.
Nationally, real estate market performance has been positive in recent times. In 2014, Aussie dwelling prices increase by 8.0% overall, with this growth trend set to continue in 2015 as the market tenders a strong performance in the first quarter of the year.
However, micro level analysis reveals mixed results for Australia’s capital cities, with standout performers Sydney and Melbourne upholding the national average. According to researcher CoreLogic, Sydney dwelling values grew by a whopping 13.7% to the end of February, while Melbourne grew by a strong 7.4%. Perth and Hobart saw less impressive results with increases of just .6% and .7%, respectively in the 12 months to February.
The inconsistency between cycles in markets like Sydney and Melbourne, and even within cities, makes for confusing conditions for buyers who use macro statistics as a gauge of micro market performance.
Unfortunately, when it comes to property, investors all too often buy based on sentiment and the latest median house data. Little consideration is given to the long-term performance history, in terms of capital growth and rental return of the individual property, a track record which typically informs future growth.
When buying property, it’s important to consider the micro factors that impact the performance of the individual asset. These include layout and floor plan functionality, style, size, age and condition, orientation, aspect and more.
History shows poor quality property is more susceptible to wider economic fluctuations than quality well-selected property. That’s because there’s only a limited supply of quality properties available to the market – during market peaks buyers vie hand over fist for these properties. In fact, in some suburbs and streets there are waiting lists to buy property in the area. Conversely, during market troughs, even though demand contracts, quality properties still benefit from demand while poorer quality properties flounder for buyers, often suffering from the vendor discounting to sell.
High-density apartment blocks are often good examples of under-performing property. History shows this property type experiences lower levels of capital growth due to greater supply, among other factors, which dampens the assets’ performance during strong periods and considerably more so during a downturn.
Due to the complexity and uniqueness of each market there is no simple way to gauge performance. Instead, thoughtful consideration of the individual performance of a property will aid you with selecting a property that performs today and in the future.