Tue 16 Oct, 2018
Has the Australian Property Bubble Burst?
It seems like speculation around an Australian property bubble has dominated the media in the last few months. Whether you’re looking to invest in property, or purchase your first home, these speculations can be difficult to ignore.
In this blog, we’ll delve deeper into what a property bubble is. We’ll also discuss whether an Australian property bubble exists or not, if it has really burst, and what that means for SMSFs looking to invest in property.
What is a Property Bubble?
Property and housing bubbles occur when there is an unsustainable rise in house prices. For example, rapid price increases to the point where properties are no longer affordable in a given market.
Signs of this happening include huge rent increases, property value increases and mortgages becoming unobtainable for ordinary people.
When a property bubble ‘bursts’ - there is no shockwave, no pop noise or bang; in fact the only evidence to its burst is a downward slide in property values, caused by buyers being priced out of the market and forcing sellers to lower their prices.
With rent and house prices rising dramatically nationwide, does this mean we’re in the midst of an Australian property bubble? And if so, are Sydney and Melbourne’s declining prices proof that it has burst?
Well, first things first; different Australian markets move in different cycles.
Although there are some scaremongering media statistics that point towards a looming “national” property price crash, these should not be taken at face value.
Most importantly, there is no such thing as a national Australian property bubble. While there has certainly been a drop in property prices in some Australian markets, the price change hasn’t been dramatic.
According to data from CoreLogic, Australia’s capital city residential property values have dropped by 6% in Sydney, 3% in Melbourne and 2.7% in Perth. However Brisbane, Adelaide and Canberra have grown in value by around 0.75%. Additionally, Hobart has also seen growth this year of 9%.
So as you can see, there is no national ‘crisis’ where property prices are falling by 20-30%.
However, it is true to say that overall, Australian property prices have declined in some of the major capital cities.
Source: Core Logic https://www.corelogic.com.au/research/monthly-indices
So Is There an Australian Property Bubble?
“There’s so many different markets around Australia, which are all different by price and geography, so it’s hard to understand one market, let alone multiple. But I would generally say that no, I don’t think there is a housing bubble. I think a lot of the time [the talk of housing bubbles is] driven by the media because everyone’s after a new story, and it’s also driven by the companies and the economists that are linked to shares or equity because they actually have vested interest.”
Peter Gordon, founder of Investo Property, also supports the idea that different markets in Australia move in different growth phases. He also points towards media sensationalism as a reason for the widespread panic.
“I don’t think that any Australian markets are currently experiencing a property bubble. I think our cities are working at different cycles at different times, some are going through a growth phase and others are levelling out and stabilising.
“The property bubble is the hype of the media. The media is there to sell press and advertising to get people to read or purchase their papers or magazines. We’ve gone through different times over the past 20-30 years, we’ve gone through recessions, we’ve had the GFC, everyone thought property prices were going to drop after the Olympic Games, we’ve had floods, cyclones… and people survive. In 2000, in Sydney a house was about $300,000 now it’s about $1 million, but not every suburb is $1 million, which is where the press get it wrong”, he says.
What Does This Mean for SMSFs Looking to Invest in Property?
Whether the Australian property bubble exists or not, all hope is not lost for SMSFs looking to invest in property. As mentioned, there are different cycles in different markets within Australia. So SMSF trustees looking to invest in property need to conduct their own research to determine the best Australian market to purchase their investment property in. Find more tips on how to decide where to invest in property on our blog!