What will happen to property prices at the end of the boom? – John Lindeman

Every good thing must come to an end.  If only we had a crystal ball and could predict what will happen after a boom.  John Lindeman has been looking at this and there is a lot we can learn from the past.


Kevin:  A lot of talk around right now – isn’t it? – about the boom ending. The good times may be over. The Sydney market is starting to slow a little bit. Indicators are that Melbourne might do the same thing. Have you ever wondered, as I have, what happens when this does come to an end? What’s the end result?
John Lindeman from Property Power Partners has been doing a bit of research on this and came up with some interesting figures, which he’s going to share with us now.
Good morning, John, and thanks for your time.
John:  Good morning, Kevin, and hello, everybody.
Kevin:  John, tell us what happens when these great times, specifically Sydney and Melbourne, will come to an end?
John:  It depends to a large degree on the nature of the demand when you look at who’s been buying properties and where the demand for accommodation is coming from. So, what I did is I looked at every capital city and the number of rental properties and the demand for them, because what I’ve realized is that even though most of the people who make housing market predictions are looking at the buyer and seller market, and they tend to ignore the rental market, it’s actually really quite important because renters move a lot more frequently than owner-occupiers – on average, according to the Bureau of Statistics, about every four years.
It means that even though they’re only one-third of the total, because they move so much more frequently, it means that two-thirds of all the households moving every year are actually renters, and as listeners would know, most units are occupied by renters and owned by investors.
When you look at what’s happened, say, in Perth and Brisbane to some extent, where there have been low house prices, a lot of aspiring first-home buyers have moved out of rental accommodation and bought properties, and so what that’s meant is that the demand for rental units, particularly in Perth, has just collapsed. And it’s also a place where I suggest not the best form of investment right now would be a unit in Brisbane. So that’s increasing the demand for houses to buy.
But when we look at Sydney and Melbourne, it’s a totally different dynamic. You see, Melbourne’s intake of overseas arrivals is about 85,000 people a year, and nearly all of these are renters, and they have to rent for a number of years before they can buy properties. I looked at Sydney and three-quarters of the city’s annual population growth, which is 90,000 people, are overseas arrivals. And all of these people have to rent.
So, what I can see in Sydney and Melbourne, in particular, even though prices will stabilize and stop going up, we can see massive asking rent rises over the next few years, and that will probably lead, once again, to more investor interest. But at this stage, I can see that Sydney and Melbourne are likely to become the cash flow capitals of Australia in the next few years.
Kevin:  Great opportunities here for investors – isn’t there – to switch from capital growth to a good rental return with that demand, John.
John:  I think that’s what these numbers are telling us, that it’s going to be cash flow rather than capital growth. Whereas in the other cities, if you’re after capital growth, then you’ll be looking at cities like Brisbane, Adelaide, and Perth, all of which have been lagging behind and have got a lot of catching up to do as far as price growth goes.
Kevin:  John, just before I let you go, the event coming up in Melbourne on the 27th, just a matter of days away. The event in Brisbane, and the event in Sydney, both sold out, great success, so we look forward to Melbourne.
If you want to get details on how you can meet John and get a good feel about what’s happening in the Australian property market in Melbourne on the 27th of February, go to the website 7Steps2Success.com.au.
They’ve been great successes, John, and no wonder because a lot of people are really interested in what’s happening with the Australian property market right now, too.
John:  Yes, they are. I think the wonderful thing about property investment is there’s always opportunities somewhere, and as I said, if you can’t get capital growth, you can certainly see the cash flow increase. There are always opportunities; it’s a matter of being well-informed.
Kevin:  That’s coming up on the 27th of February in Melbourne. Don’t miss it. The website again, 7Steps2Success.com.au, with John Lindeman from Property Power Partners.
John, thanks again for your time. We’ll talk soon, mate.
John:  Thank you very much, Kevin, and I look to seeing your listeners at the event.

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