Property Point July 3rd

There are new things to consider when buying real estate in Australia.

Up until last month, people buying real estate in Sydney really only considered the capital growth they were expecting to create within just a few years of making their purchase.

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Paying $1.2 million for an inner-city two-bedroom apartment didn’t matter so much if it was going to be worth $1.5 million two years later.

It didn’t really matter that the crap rental returns you got for that price didn’t go anywhere near covering the mortgage because the old negative gearing benefit meant you could claim the losses on your tax.

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Things have changed. Negative gearing has gone and prices are dropping in Sydney … so that $1.2 million apartment doesn’t look so enticing any more, even though it’s now $1.1 million.

Other cities have also been hit hard. Melbourne is now one of the cheapest cities in Australia to buy real estate. Although there are special Victorian reasons that come into play in that state.

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Victorians were bullied during COVID in a way that impacted small businesses in a disastrous way. The state’s debt is exorbitant, and no one seems to know how it gets paid back. Tobacco shops keep getting blown up by some underworld gang thing that the Government can’t control. They have metal boxes where people can hand in their machetes and that doesn’t appear to instil peace of mind in anyone.  

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Terrible Governments end up having an impact and it definitely has had one on property prices in Victoria.  

A quick scan of on-line property sites shows you that you can pick up a decent two-bedroom unit in an inner-city suburbs like St Kilda and Collingwood in the $400,000s. I saw a three-bedder in St Kilda advertised in the $500,000s.

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While those prices might seem like great value, there are reasons the market is so low. People don’t trust the state Government and its management of the economy and the obvious concern would be that even though the prices might be low, there is no guarantee of capital growth.

Capital growth has offered a warm embrace for investors in Australian real estate over many years. There has been an expectation that prices will go up. Obviously they will go up again but the questions is: Where will they go up, when and by how much?

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Unfortunately I don’t have the answer to that but I do find that when things get a bit blurry and uncertain, it’s good to stick to what you know … which, for me, is Mackay.

We have several advantages over many other markets. Our median price for houses, in the $600,000s, is a lot lower than bigger cities so more affordable for local people who, by the way, still need somewhere to live.

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And, with the end of negative gearing and the banning of borrowing for property out of self-managed super funds, lower prices and strong rental returns should become a key factor in real estate investment.

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Yes, investors want capital growth but I feel the focus will probably shift more to rental yield and the monthly return on investment.

Mackay’s rental returns are good and the purchase prices relatively low compared to other markets so there seems to me a good chance that our market will continue to be buoyed by those wanting to take advantage of that.

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Meanwhile the Mackay economy seems to be going well, driven by that crucial resource that is dug out of the ground and exported to countries that make steel.

I got strong offers on three properties this week so there is a feeling that while there has certainly been a change driven by national political factors, our market is moving through it, adjusting to the new information and still bubbling along.

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The only thing I would say is that if any of you bump into David Crisafulli tell him to dump those high-level coal royalties.  

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