According to the latest Corelogic data, in 2016 Australian property prices recorded an annualised median price growth of 10.9% p.a., the highest annualised growth for a calendar year since 2009. When we add in the yields from rentals, the total combined capital city returns become 14.7% p.a. Compared to cash, bonds, and other fixed assets, these yields are very healthy indeed!
So in 2017, are we set to see the same result? Will it get better? Or will 2017 be a bad year for property?
Well to answer that question we need to dig a little bit deeper into the data, get out our crystal ball to make our predictions for the macroeconomic landscape for 2017, and look at the alternative investments for 2017.
For example, Melbourne's reported median capital city growth of 13.7% p.a. is an average of the results of all the suburbs that make up the geographic boundaries of Melbourne.
According to Corelogic, the Melbourne suburb of Windsor recorded median growth of 47% and the Top 10 suburbs for houses averaged a whopping 33.5% growth in median price in 2016.
A few interesting takeaways come out of this data. The median price for the top performing suburbs is well in excess of $1.6M, with some suburbs having a median price of almost $3M.
That would indicate that there is still plenty of appetite for largely owner-occupied houses in Melbourne’s most desirable suburbs within 5-20km approximately of the CBD.
At this price point though, these properties will be out of the reach of the majority of property investors.
And the top 10 performing suburbs in Melbourne for units showed healthy growth rates averaging over 20% p.a.
So whilst the average median of the Top 10 Units is around $1M less expensive, and therefore within more investors' price range, we still see that the majority of the hottest areas in Melbourne are still within that 25km ring of the CBD and largely located throughout Melbourne's East, and South-East regions.
And for even the worst performing capital city of Perth, Corelogic still reported double-digit house price growth in the Top 10 suburbs, with a median price in these 10 suburbs of over $1M, showing that in all markets there will be those suburbs, and those property types, that can outperform the averages.
Well of course no one knows for sure, but here are 6 things we can predict with a relatively high degree of probability:
1. Inflation will remain low in 2017
With low wages growth -- and commodities and oil prices likely to remain steady (or grow at a moderate pace at best) -- inflation seems to be tracking well below the RBA’s target band of 2-3% p.a.
In these low interest rate environments (cash rate at 1.5% at 31st Dec. 2016), assets such as shares and property generally perform well.
Whilst the RBA will likely sit on its haunches for the first few months of 2017, if we see unemployment track higher, or the AUD exchange rate rises (e.g. on the back of increasing commodity prices, or the inability of the US Federal Reserve to lift US rates higher), or if the Australian Prudential Regulatory Authority (APRA) imposes more requirements on the banks to curb lending to investors, then the RBA may have the scope to drop official interest rates even further in 2017.
I would not expect to see the official cash rate below 1% p.a. in 2017 at this stage though.
2. The United States and China will dominate the economic landscape of 2017 (with Russia trying to exert itself into the fray)
The 2 largest economies in the world may clash over some serious issues in 2017 with Donald Trump talking up a more protectionist policy for the US.
Uncertainty will be high as the Trump factor plays out. How he will go trying to impose trade barriers with China and enact the dissolution of the Trans Pacific Partnership will all be played out in 2017.
Additionally, China’s ability to control the descent of its unsustainable growth rates will have major influences on the world economy in 2017. 2016 started off very rocky on fears that China’s policy makers would lose their way, but steadied upon the realisation that China’s 40 year economic plan appears to be still on track and manageable.
3. National debts will continue to rise
So far markets have responded favourably to Trump's rhetoric of increasing government debt to spend up big on infrastructure and tax cuts. Whether he will have the political skill to get these promises through Congress will be something to watch in 2017.
Regardless, we will expect to see most advanced economies (including Australia’s) continue to rack up debt as they try and nurse their flailing economies back towards long term GDP growth. Australia could benefit from taking a leaf out of Trump’s playbook, but with a narrow majority, hostile senate, and a weak political leadership in place, Australia will most likely miss out on the record-low interest rates on offer to do some major national infrastructure building and the economic stimulus that comes with it.
5. Geopolitical tensions will rise
In 2016 we saw the war in Syria, tensions in North Korea and the South China Sea, and terrorism spreading throughout Africa, the Eurozone, and the Middle East. Much of this is likely to continue to make news and influence the macroeconomic landscape in 2017.
These events will likely only have intermittent and minor impacts on our economy, unless these events escalate into a serious war between major countries, e.g. if China and the US clash over the South China Sea.
Dissatisfaction with major political parties has seen the rise of right wing politics and populism amongst voters. This will see Donald Trump take the mantle as the Leader of the Free World later this month. Closer to home, Pauline Hanson and her One Nation Party have gathered support and will be an increasingly influential party in 2017.
6. Some, but not all, property will grow in value in 2017!
It is likely that pockets of oversupply will restrain price growth, especially in most inner city apartment markets. However, well-positioned, quality property assets will continue to grow in 2017, albeit perhaps slower on average than in 2016.
Affordability, especially in Sydney & Melbourne, will become an increasingly difficult issue for the government and the RBA to control against the backdrop of these low inflation, low interest rate conditions we find ourselves in.
To find out more, and to learn what, where, how and why we will be continuing to invest in the Australian Residential Property markets in 2017, join us on Wednesday the 18th January 2017 on our first online training for 2017.
Join co-founders of The Property Mentors, Matthew Bateman & Luke Harris, as they walk you through the events likely to shape 2017 and how you can position yourself to take maximum advantage of them.