March 21, 2011
extracted: sydney morning herald
I’ve said it time and again that the residential property investment is a long-term proposition. The property market takes about seven to 10 years to move through a full cycle – from low capital growth/high rental yield, to high growth/low yield and back again.
Despite this, many property investors choose locations and property styles with little potential to survive and thrive throughout market fluctuations.
Some investors choose locations that lack the long-term underlying demand to drive capital growth, while others choose property styles that don’t reflect trends in the way people want to live.
In other words, the property investment decisions that look good today may not prove so attractive in five, 10 or 20 years. It’s essential to understand the nature of long-term economic and demographic trends, then select assets accordingly.
Interest rates rise and fall, but in the long term, dwindling oil reserves and rising petrol prices will be a key economic trend influencing the property market. In the coming years, rising prices at the pump will make outer suburban living and commuting less feasible and less appealing.
This will curtail the urban sprawl and increase demand among homebuyers for property in the middle suburbs close to public transport corridors, shops and schools.
At the same time, rising property prices in the inner and middle suburbs will put home ownership beyond the reach of more Australians, or at the very least, delay it significantly.
Figures from the Bureau of Statistics tell us that the proportion of households renting from private landlords increased from 19 to 22 per cent in the 10 years to 2006 (when the last census was completed).
What’s more, the proportion of Australians aged 35 to 44 who were renting rose five percentage points over the same period, to sit at 32 per cent. There’s every reason to expect that this trend will continue.
Because many tenants want to maintain the trappings of an urban lifestyle, the trend away from home ownership will increase demand for rental properties within walking or short driving distance from trams, trains, shops, cafes and entertainment. This will further boost capital growth prospects in the inner and middle suburbs.
Delaying having children is another trend set to influence the residential market well into the future. The median age for parents is growing, at 30.8 for women and 33.1 for men. And women aged 40 to 44 (said to have completed their families) have an average of two children, compared with 2.8 in 1981.
The shrinking family unit means that demand for low-maintenance, compact dwellings will rise, while demand for the conventional sprawling home on an outer suburban block will fall.
When you look at all these trends in their entirety, it’s clear that pockets of the middle suburbs with large blocks on land close to public transport, shops and schools will provide feasible long-term opportunities for residential property investment, particularly for investors who have been priced out of the tightly held inner suburbs.
Mark Armstrong is an independent property analyst and adviser.