INVESCASA Insights is bringing you the golden nugget of everything happening in the Property Market in Australia.
The markets are a true reflection of everything happening on a global scale. They react and change based on our emotions. By analysing the data and understanding historical trends, money, numbers, and people, you can excel in life.
If you recall our last newsletter touched on what is a recession and how it affects the property markets. In this newsletter, we will provide updates on some indicators and show you HOW A SEA OF CHANGE IS APPROACHING.
A deep dive into:
A recession creates opportunity and reset the cycle... Think of it like summer, autumn, spring, and winter. The same seasons occur every year without change. You just need to know to navigate through each season, and with a long-term view, you will be fine.
The good news is that the times ahead will be radically different from what we have experienced in our lifetimes, but similar to many times before - Ray Dalio.
Since the 1970s, wages have not increased as much as assets. Consequently, people have taken on debt over time to compensate for the difference in prices. In the process of trying to make the dream of retirement a reality, we fuelled property prices with cheap debt that most couldn't afford. We all thought this would go on forever...
Now we find ourselves in an environment with high interest rates, making it difficult to see a bright future. Where will the growth and liquidity come from to push asset prices up again in the next new cycle? The answer lies in productivity, debt growth, and population growth, which define GDP. The economy will recycle, new technologies will emerge to boost incomes, and the cycle will begin anew. We have the evidence below.
Let me remind you of what has happened throughout history without fail for the last 300 years, since the establishment of our monetary system...
The same cycle repeats approximately every 7-10 years without fail. When should I buy in? When the clock hits 6-7, an easy answer but hard to execute. According to the graph below, there are crises every 7-11 years approximately. We are due for a reset that we needed to move forward. Quantitative easing (QE) and money printing have been the answer for debt expansion.
This is where liquidity will come from: new productivity through new technology, rising incomes, and normalised interest rates. People's behaviour will refuel the next cycle.
Timing the market is extremely difficult but there are some indicators that showing that the markets are transitioning. And that's what we're here to show you...
Ultimately, investing in property is about protecting your capital and generating returns on your investment.
Let's take, for example, this property in Adelaide - 22 Glenda Avenue, Morphett Vale.
It is a 4-bedroom, 2-bathroom house on a 696m2 plot located in South Adelaide, 15km from the CBD. It is currently on the market with an asking price of $650,000, with a rental income of approximately $650 per week, resulting in a yield of 5.2%.
Just three years ago, this house sold for $314,000 in 2014, and today, in 2023, it is valued at $650,000. In just three years, there has been a 50% growth, resulting in a 12x return on your invested money.
What recession? What impact have rates had on prices? How can you explain this...
SOME MAY SAY.... BUBBLE... but we simply call it supply and demand imbalances, which cause scarcity, and this is the reason why prices fluctuate in economic terms.
In the last 5 years, Morphett Vale has experienced a 37% increase. The suburb is gaining momentum due to its affordability. There is more demand than supply. We're talking about an average house price of 500k.
The Adelaide market as a whole has experienced an 11% increase in the last 12 months. Essentially, if you have been waiting since August last year, you have missed out on this growth.
After 10 consecutive months of interest rate rises, Adelaide and Perth continue to perform well, while the luxury market in Sydney is showing signs of recovery. See below for more details.
Reason #1: Markets that are affordable will continue to rise until they become unaffordable if they have the right fundamentals.
Rental markets are already historically tight. Even before our international borders reopen, rental markets were challenging due to shrinking household sizes and subdued investor activity.
DEMAND IN PROPERTY TERMS = PEOPLE - people in need of immediate accommodation, such as migrants... 400K per year.
In the year leading up to September 2022, the population increased by a record-breaking 418,500 people, primarily driven by a net overseas migration of over 300,000 individuals during the same period, which was nearly a record high.
In fact, Australia witnessed the largest quarterly net inflow of overseas migrants on record in the September quarter, with a total of 106,000 people.
WHERE ARE THESE PEOPLE GOING TO LIVE?
No one is building houses, companies are going broke... restructuring the excess is not a matter of whether it is good or bad; it is about what is necessary.
Who will benefit from this? LAND OWNERS.
More demand equals more pressure on rents, resulting in higher rental returns and higher property prices.
Building approvals have experienced a sharp decline, with a 46% year-on-year drop in approvals for private sector apartments, particularly for larger-scale constructions.
Have we hit the bottom yet? We are transitioning into the next phase! THE NEXT PHASE, where new companies will be born and new opportunities will arise, whether YOU BELIEVE OR NOT.
House renovations, commercial properties conversion... new opportunities.
Active management of rentas - Airbnb, co-living.
New developments - new suburbs in cheaper cities with a good lifestyle.
BUT THE OPPORTUNITY IS BIG... just like AFTER THE GFC in 2008. Fundamentals will be right again. Hang tight.
Fundamentals, fundamentals, fundamentals.... Strong migration, low vacancy rates, and limited new supply. With no construction, income will rises due to increases in productivity. The cycle will restart again.
A seas of change is coming
OWN LAND!
JF Gallardo group PTY LTD ( ABN 76 633 861 195 ) trading as Invescasa Property is a consulting business and does not provide financial, taxation, accounting and or legal advice. You should consider seeking independent legal, financial, taxation or other advice to check how the information contained within this website relates to your personal circumstances and how it may impact you. The publisher is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by this website or any information provided. License number 083766L