PROPERTY

Low interest rates, hot market: property outlook for 2016

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Low interest rates look likely to stay in play for all of 2016, but positive sentiment and hot market activity in our two biggest property markets of Sydney and Melbourne are starting to cool off. So what can we expect the new year to bring in terms of a property outlook?

Residential property has long been a favourite investment choice for Australians and investment activity, though softer, is likely to continue into 2016.

The recent PIPA Property Investor Sentiment survey, which gathered insights from more than 1000 property investors nationally, showed investors remain upbeat about the sector's long-term prospects, with well over half of investors believing now is still good time to invest in property.

property outlook 2016

Looking ahead, I expect the new year to be a case of 'markets within markets.'

When we look at the Sydney and Melbourne markets, generally they will more than likely report a softening growth story across the board. Yet the true story of the sub-markets within these capital city markets will be quite different.

Medium and high density apartments in Sydney and Melbourne will come under pressure in 2016 as further supply hits the market and buyer interest softens. These property types will likely experience the biggest headwinds next year - and you can put Brisbane, Darwin and Canberra into this apartment over-supply basket too.

But within our larger capitals, demand for good quality, centrally-located family housing will continue to push ahead, though not quite at the heady heights we saw in early 2015 as FOMO (Fear Of Missing Out) took over.

Family housing is still scarce on the ground relative to other types so I'd expect these properties to maintain strong interest in the low interest rate environment.

It is of course important to differentiate between centrally located family housing and house and land packages in greenfield areas further out of major centres. These are not in scarce supply at all, and in fact in some locations they could come under price decline pressures as they correct from the unrealistic double digit growth experienced in the past 18 months.

Tracking the level of interest and changes in land prices is not hard in these greenfield locations and is important for those looking to get into such a market. From an investment perspective if the level of owner occupier interest is waning then it's not smart to think you are getting a bargain, until you do see a bottom at some point in the next 2-3 years.

Cities offering more affordable property options are likely to attract the most interest in 2016, not just from investors. As housing, and living in general, becomes increasingly expensive in our biggest capitals, it's likely we will see increasing levels of intra-state migration.

'Borderless investing' will become more of a buzz statement as savvy investors realise it's not smart to be buying at the top of some property cycles and scope out better opportunities elsewhere.

On the theme of buzz statements, I also expect 'rentvesting' to gather further momentum in the new year, as households crunch the numbers on renting where they want to live and investing the difference of what a mortgage would cost them in the same location.

And it won't just be first time buyers opting to 'rentvest'. More and more families will start to rent where they can get their kids into the best public schools and choose to make their money work a bit harder for them by buying a couple of investment properties instead.

Property prices can fluctuate so a long-term view is a key requirement for property investors. Successful property investment is the result of the right investment strategy, extensive due diligence, careful selection and getting some expert advice. A qualified property adviser can work with you to ensure any purchase is part of a bigger picture wealth creation strategy.

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Ben Kingsley is partner of specialist property investment advisory firm Empower Wealth and co-author of The Armchair Guide to Property Investing. He co-hosts The Property Couch podcast, and is chair of Property Investment Professionals of Australia.
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