What Is Driving This Property Growth Cycle. Surprise…….Its Not Just Interest Rates!

Are Low-Interest Rates The Only Cause Of This Current Real Estate Growth? Not exactly.

The Current Growth Cycle

A Real Estate Growth Cycle is well underway in Australia. Towards the end of 2020, things were starting to heat up. By February 2021, it was clear we were in a national real estate growth market. Many economists are reporting that low-interest rates are the prime reason for growth.

Interest rates are a contributing factor to this nationwide property surge. Yet, there are many more driving growth reasons, such as low levels of new listing stock and the departure to a more affordable lifestyle. The fundamentals for continued price growth is supported in some areas over others & for investors, this will be the real test.

There is an analogy I like to repeat to my clients and to buyers looking to enter into the current real estate market – “When the tide is in, you cannot see who is swimming naked. But, when the tide retreats..it becomes obvious” (Raunchy – yet effective in its meaning 😊)

Meaning – Many suburbs that have/are increasing in value do not have the historical growth data and overall capacity to continue strong growth after the boom. The fundamentals of property investing ring true no matter what the current market conditions are. This means that you must be extra careful not to speculate and stick to the winning formula of buying quality properties in investment-grade suburbs.

Interest Rates

I don’t want to delve deeper into this because frankly no one knows when interest rates could go up. But many of the top residential data providers – The top 4 banks economists and other various property economists believe a rise is still a while away. The Reserve Bank of Australia & The Australian Prudential Regulation Authority (APRA) have said they won’t intervene until specific targets are met (I.e. Inflation targets). They believe these targets will be met by 2023/2024.

The economy is still rebuilding, with increases in property prices creating wealth for Australians who own real estate. Interest rates are likely to start rising towards the end of 2022. This is being conservative compared to the RBA, but with the economic rebound we are experiencing, interest rates could rise sooner than expected.

If you current own investment properties or your home now is the time to start preparing for this rise of interest rates back up to the 4-5% mark, with the expectation there will be a gradual rise in rates, not a big jump. Talk to your team of professional advisors such as your mortgage broker, accountant and financial planner.

Reasons For The Upcycle – Not Just Record Low-Interest Rates

Many economists believe that it is the low-interest-rate environment that is driving the price rise. Whilst this is a leading factor, there are other reasons to support the continued upward swing of this cycle.

A quick look at the data from CoreLogic’s national home value index shows the fastest rate of growth in March 2021 since 1988. As of June 2021, 4 out of 6 months has seen a rise in almost all capital cities across Australia. Whilst impressive, this cannot last…

So what are the factors that will continue to push growth upwards? Terry Ryder from hotspotting.com.au believes there are 14 reasons, including.

But, what Capital Cities will likely receive continued growth?

Brisbane As A Standout

To be blunt, Brisbane has not done much in the past 10-12years, sitting flat, until now. According to Terry Ryder from hotspotting.com.au, if we look back just 9months ago, there were 28 suburbs identified as rising markets in Brisbane and surrounding local government areas. As of May 2021, there are now 124 suburbs that are considered growing markets.

Here are some reasons Brisbane and SEQ will be a standout over the next 12-24 months.

  1. Brisbane real estate market has been depressed for 10+ years. Plenty of room left for growth and still be considered “affordable” compared to Sydney and Melbourne.
  2. Queensland as a whole has handled Covid-19 better than most other states
  3. Housing affordability
  4. Low vacancy rates and rising rents
  5. Massive interstate migration from our southern counterparts (>30,000ppl in 2020)
  6. It is the Number 1 pick for Investors – Survey from the Property Investment Professionals of Australia
  7. Game changer – 2032 OLYMPIC GAMES = More infrastructure expenditure, job creation & tourism.
  8. Biggest factor – Infrastructure expenditure.
  9. A range of prices starting from $300,000s in the 20-30km ring through to 1Mil + prices in the 1-15km ring.

Infrastructure Highlights – “When all else fails, follow the infrastructure trail”

ProjectBudget
Queens Wharf3bil
Eagle St Pier2.1bil
Brisbane live2.1bil
New Brisbane Runway1.1bil
Coomera Connector2bil
Cross River Rail5.4bi
Fortitude Valley Commercial2.5bil
Albion Exchange750mil
Toowong Town Centre450mil
Crestmead Logistics Estate1.5bil
Olympic Games?

Data obtained from Terry Ryder (hottspotting.com.au)

One of the most significant factors that affect a local government areas growth and ultimately the value of properties within its suburbs is new infrastructure.

Currently, in 2021 in response to the Covid-19 virus, unprecedented state and federal stimulus poured into infrastructure projects. Many of which were shovel-ready programs being given the green light to proceed, and other projects pushed forward, creating a boom in new infrastructure.

More infrastructure brings much needed economic stimulus to local economies by creating jobs for trades, services, and professionals. Southeast Queensland will continue to stay at the height of a real estate growth cycle for at least the next 12-15months. Once Interest rates increase, the market will inevitably pull back. This pullback will not be as severe as many believe it to be, with above-average growth to continue across many investment-grade suburbs across the Greater Brisbane area.

The next 10years looks exceptionally favourable for the SEQ Real Estate Markets, with many property experts deeming it the roaring 20s. With 52.2b already budgeted to be spent over 4years on new infrastructure. More fuel has now been placed on the fire with the 2032 Olympic games to be hosted by Brisbane. This announcement will add another layer of new infrastructure projects across the Sunshine Coast, Gold Coast & Brisbane city. The outcome is further growth in our property markets as the fundamentals for growth stay incredibly strong.

With the SEQ markets set to peak around 2025/2026 (According to the 18.6yr property cycle), a new cycle could be established as the infrastructure spend softens the downturn that usually follows the peak. Continuing the growth cycle into the first half of the next cycle.

But, at the end of the day. No-one truly knows what lies ahead as there are just too many variables. It’s all about making the most educated guess using the best data.

One things is for sure- It’s a good time to own & buy property in Queensland, no doubt about that.

Want to know how we can help you navigate this current market? Book in a discovery call through our website at www.propertynavigation.com.au.

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