Speaking to SMSF Adviser, AMP Capital head of investment strategy and chief economist Dr Shane Oliver suggested practitioners should be aware that currently, property prices vary greatly across Australia.
Prices have fallen in Darwin, Perth and Canberra, with Darwin experiencing the steepest decline, he noted. At the other extreme, property prices in Sydney are up 17.6 per cent in the 12 months to the end of August this year.
“It’s very uneven across the country which partly reflects the demise of the mining boom which is weighing on the property markets within Darwin and Perth,” Dr Oliver said.
“At the other end, low interest rates and improved economic conditions are pushing up property prices in Sydney and Melbourne.”
With the performance of different regions so diverse, CommSec head of adviser services Eric Blewitt told SMSF Adviser practitioners should be aware of the variation in returns, which is dependent on location.
“Looking at the diametrically opposed growths or reductions around the country, [capital growth] is pretty hard to pick,” says Mr Blewitt.
Speaking at BIS Shrapnel’s Business Forecasting conference in Sydney yesterday, BIS Shrapnel managing director Robert Mellor warned that certain cities are looking likely to be in oversupply in the mid-term.
“One of the dangers is there’s been an understanding out there that, in the residential sector, Australia is massively undersupplied, with a lack of dwellings across the country,” he said.
“The impression is given that this is the same across most markets. That’s not the case. In fact you could argue in terms of the number of states and cities, there are more markets [that will] be in oversupply in the next 18 months to two years than in under supply.”
However, he noted that “fundamentally” BIS Shrapnel cannot foresee Sydney being in oversupply territory within the next five years.
There is a “significant risk” that in the next 12 months to two years inner-city apartments in Brisbane will go into oversupply, with building levels two to three times higher than they have been on average in the past 10 to 15 years.
Perth is likely already in oversupply, Mr Mellor said, and the smaller markets of Tasmania, the Northern Territory and ACT are all experiencing “significant oversupply”, he added.
Similarly, BIS Shrapnel’s associate director Dr Kim Hawtrey said he believes the home building boom in Australia is peaking.
“Booms are mesmerisingly, hypnotically, trance-inducingly, spellbindingly seductive. And when you’re in a boom, you think it’s going to keep on going forever. Like Sunday afternoon, it’s a little bit seductive – but Monday morning is coming,” he said.
Read more:
ATO urged to outline penalties for invalid TRIS payments
There is a lot of generalisation in this article.
Property can’t be lumped onto one category or one market for that matter.
What determines a property’s capacity to grow in value includes macro and micro economic growth drivers and variables such as property type, location, supply and demand factors and tenant supply and demand.
Unlike other asset types, property needs to be assessed on a case by case basis, to ensure it not only meets the SMSF Trustees investment brief, but also the members risk profiles and timeframes to retirement.
The biggest danger to SMSF trustees is taking property investment advice from those with a vested interest in selling them the property i.e. property spruikers, selling agents, project marketers and those trusted professionals who all get a cut of the sales commission along the way!
Miriam Sandkuhler
Author, Director, Licensed Buyers Agent and Property Investment Advisor