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Investors’ expectations are TOO high in the face of market headwinds

In many situations zero asset growth would be considered an investment failure, but Anna Porter of Suburbanite, property economist and a former property valuer believes that in some circumstances a big fat zero is a desirable outcome.

“It is a similar phenomenon to the stock market when the market is falling and investors are seeing declines in their equities portfolio, a neutral position is a good outcome because it means that an investor doesn’t sustain a loss. The property market can be viewed in a similar vein when values are declining,” says Porter.

“But most investors won’t settle for this outcome and want year on year growth”.

It is fair to say that the property market is facing some headwinds and some areas are even on the decline. But the question is how investors will respond in the face of adversity. Many are considering their options to sell or hold, but Porter says that expectations are still high.

“Many investors are now facing losses in their property values, we see it in markets across Sydney, Melbourne, units in Brisbane, Cairns, regional hubs and Canberra units to name a few. While some investors are seeing significant losses, others are still expecting high gains. It is really a matter of investors starting to adjust their expectations to meet the market,” continues Porter.

“The best example we see is the Brisbane market. Many investors who have purchased off the plan units are seeing $50,000-$100,000 declines in their values in 12-24 months while the housing market in the metro areas around Brisbane has seen a fairly flat market, perhaps a small amount of increase in some pockets over the past 3-4 years. But many investors still have expectations of strong upswing in the value of their property in the same period. In this scenario, a neutral return – meaning no growth but also no loss is a fairly good outcome all things considered,” states Porter.

“Many Australians have become so accustomed to the property market going up so much in the past 5 years they forget that every market has its corrections and downturns. With an environment that has been peppered with banking royal commissions, elections, a tightening lending environment and more changes of Prime Minister than we change seasons the property market is expected to take a tumble. If investors can maintain a neutral position, or even some modest growth then they should see that as a good outcome for the past few years,” reports Porter.

Suburbanite’s research house annually conducts a Negative Growth Report which quite literally lists all the suburbs across Australia where house and unit prices declined in value.

This year, Australia saw a 37 per cent increase in the number of suburbs where values fell compared to the same report last year.

“If we look at Wollongong for example, the units in Mangerton contracted by 43.9 per cent. Compare this to Dapto where the houses grew modestly at a rate of 5.2 per cent,” says Porter.

“These type of growth figures in the low 5’s are a more realistic expectation and we can expect to see this for some time to come.”
Expectations can also be hindered by reality like the statistics around the new aerotropolis surrounds, having been brought to life by the long-awaited Badgery’s Creek airport and new activations to the precincts but this south-west Sydney pocket is definitely not performing as expected.

Liverpool’s unit market saw declines of 7%.

“We’re seeing the same thing Brisbane has been seeing for years starting to filter through here. There is an oversupply of units,” says Anna.

“Liverpool is predominantly unit accommodation but the facilities in the area cater to families. So, the accommodation style is not appropriate for the locale. With a lack of restaurants, bars and nightlife in the area but a housing style that is predominantly for young couples, singles and retirees there is no surprise that it underperforms when the market starts to cool off,”

“People buy here when they are priced out of more urban hubs that offer better lifestyle amenities, but when the buying power returns to the market this area starts to get overlooked for more desirable locations. This is exactly what we are starting to see in the statistics,” says Ms Porter.

In Queensland, the suburb of Sunset in the mining region of Mount Isa saw house prices fall by 27.9 per cent, a direct reflection of businesses in the area continue to wind down, and a reality buyers expectations do not often account for.

“Developers often get creative and many investment firms push Beachmere near Deception Bay as a good investment area but the unit values here have actually dropped by 49.8%,” says Porter.

The mining boom slowly coming to an end has also impacted values in towns in Western Australia.

“Regional mining towns are great when there’s a mining boom, but if you go regional, you have to think what happens when the market turns that corner,” warns Porter.

“The mining city of Kalgoorlie has been hit hard in recent years, and according to my report the nearby town of Kambalda has seen house prices fall up to 35 per cent.”