- 01Nationwide prices fell: Sydney -4.7%, Melbourne -3.3%.
- 02High rates and costs curb demand.
- 03Slower sales favour buyers.
- 04Long-term buyers and REITs may benefit.
In something of a rare event, Australia is going through a fall in property prices across all of its capital cities.
What started as some selective weakness has now spread across the board with the Sydney market falling 4.7% in the last quarter, while the Melbourne market fell 3.3% as well.
The other capitals are later at coming to the party but they have all fallen too, marking a quite rare uniform drop—the biggest quarterly fall for the big capitals in four years.
Market Decisively Turned
With unit prices also down, it is clear that after years of resilience and stellar annual gains, the property market has now turned decisively.
It is not hard to search for reasons for the downturn.
Housing affordability is in the toilet, interest rates are high and probably heading higher, unemployment is heading up along with the cost-of-living courtesy of our fast-spending governments, and stubbornly high fuel prices which are ratcheting up many other prices as well.
Getting finance has also tightened up considerably, so even those who want to use this rare break in what has been a steadily rising market for many years are often struggling to get loan approval.
Top End Hit Hardest
The downturn has also been strongest at the top end of the market, with first-home buyer properties holding up better than some of the fancier versions further up the food chain.
The broadening and deepening of the property downturn has had several notable effects.
The balance of power has shifted towards buyers, homes and units are taking longer to sell and, with greater opportunities to negotiate, sellers are having to be realistic and not hold on to boom time valuations that might have applied a year or more ago.
Interestingly, most property analysts say that the synchronised property downturn has been led by a lack of demand rather than an oversupply of property.
The cumulative impact of rising interest rates, lower affordability, and cost-of-living pressures has done a good job of reducing demand, they claim.
Prices were falling before the Federal Government Budget but the changes to negative gearing and capital gains tax seemed to reinforce the downward trend.
Ways to Take Advantage
The big question, of course, is how best to take advantage of the property downturn, which is a rare enough event that it should not be wasted.
Naturally, if you have a longer-term outlook of seven to ten years and can service a property loan as either a principal place of residence or an investment property then that is one way to take advantage of the downturn.
There are other much smaller ways to ride the downturn, given that real estate yields have been compressed and made less attractive due to rising interest rates.
That has pushed the prices for real estate investment trusts (REITs) down, making that a good way to surf the downturn, as long as you can be patient.
For example, the Vanguard Australian Property Securities Index fund (ASX: VAP) is now down around almost 21% in the past year and has a dividend yield of around 3.3%.
As an index fund across all Australian REITs, that price fall will include exposure to other property classes including data centres and shopping malls.
That means it won’t be representative of just the residential scene but as an eventual turnaround stock for a property recovery, making it much more diversified than buying a single property.
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The ASX small-cap stories that matter, filed before 9am AEST. Curated by the Small Caps desk.