Decline in Construction Means Property Market to Boom Again

Property Market to Boom Again

You may think that Australia is in a downturn, especially after the housing market bubble burst, but the Reserve Bank of Australia is already forecasting the property market to boom again.

RBA expects construction activity, which is already surprising slow to continue declining into next year, creating a supply shortfall.

As demand returns to the market, there won’t be enough stock to cater for it, leading to yet another price surge especially in the cities of Sydney and Melbourne, but this will roll out through Brisbane as well.

residential dwellings

“While the increase in supply has finally met the earlier increase in demand, demand will continue to grow given population growth but supply is going to decline.

So there is quite likely to be a shortfall again in the foreseeable future,” RBA deputy governor Guy Debelle

The major problem with a decline in the supply of housing is that it takes a long time to get it going again.

The same thing happened between 2012 and 2017 where prices increased by 58% and 75% in Melbourne and Sydney, if supply doesn’t out pass demand property prices climb and they climb fast, especially in the major cities.

Debelle said, “Building approvals are around 40 per cent lower than their peak in late 2017.”

“We are forecasting a further 7% decline in dwelling investment over the next year and there is some risk the decline could be even larger, Debelle said, noting that 2020 could be the year construction bottoms.

Property Cycle

Of course, if you look at the Property Cycle this is pretty predictable.

During the boom period of the property cycle, you see lots of construction happening, and you notice by the number of cranes throughout cities.

Property buyers are excited by the boom and look to get in on the action (little do they know its too late).

Then as the market cools, which it has done for the last 12 to 18 months, construction slows as properties are not sold as fast off the plan, auction clearance rates drop and lending is tighter.

This results in construction companies holding off on current builds, reducing the number of dwellings being built and passing off land to other developers because costs and overruns are getting too tight.

Property Cycle Infographic: Recovery, Boom, Slow Down and Slump

Whether you are starting out in property investing or have been investing for some time one of the major things you should know and understand about property is the property cycle.

This will help you decide when you should buy and or sell property to make the most of the timing of the market.  There is nothing worse buying at the top of the boom or anywhere in the slump cycle. The same goes for selling, you don’t want to be selling in the slump or slow down where you will get top dollar buy selling in the boom cycle.

With this in mind, we have put together an infographic containing the property cycle process from recovery, to boom, to slow down to slump and back to recovery.

This will help you briefly understand the property cycle, feel free to share it with your friends.

Property Cycle Infographic

Population Growth

Australia has a population growth of 1.6%.

The data refers to the estimated resident population (ERP), which takes into account the “natural increase component” (that is, the number of births minus the number of deaths), as well as net overseas migration (NOM).

Accordingly, Australia’s population at December 31, 2018 was 25,180,200.

This represented an increase of 404,800 people (or 1.6 per cent) over 2017.

Anna Boucher, a global migration expert at the University of Sydney, said that compared to other OECD countries, Australia’s population growth was “on the high end” of the scale.

“A lot of OECD countries have declining populations, mainly because of population ageing,” she said.

“We have more healthy fertility rates and we have higher — much higher — migration.”

Overall the decline in construction is part of the standard property cycle process that happens and has been happening for years.

What we take from this is the ability to know that the market is on it’s way back and property prices are making their recovery.

 

Contact us today if you would like to have personalised property investment consultation and advice around purchasing an investment property in the right area that is positive cash flow.

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