There’s no doubt 2022 has been a rollercoaster of a year for property markets, with the boom times that we’ve experienced over the past few years now behind us. With that said, 2023 might just turn out to be a good opportunity for many investors who have been stuck on the sidelines and haven’t felt the time was right to purchase a property due to market timing.
I don’t like to sit here and make new projections about what I think the broader market is going to do next year since the existing ones have proved to be correct so far. In reality, there will be winners and losers, like in all property cycles. Our mission is to try to identify some of the potentially better-performing opportunities for our clients.
There are valid concerns that rising interest rates will continue to weigh on sentiment and housing prices and that is causing many people to sit on their hands and try and wait for a bottom in the property market.
In reality, trying to pick that perfect moment is incredibly difficult, as it is in all asset classes. In fact, you’re probably better off getting your financials in order so that you can enter the market earlier rather than later when the right opportunity for your personal circumstances presents itself. Over the last few years, it’s been incredibly difficult to purchase quality properties in blue-chip locations across Sydney and the East Coast.
There’s been a lack of supply and huge demand from the “right-sizer” buyer segment. As a result, many people have simply missed out and been forced to sit and wait.
Now that dynamic is starting to change, and it is important to actually do something about it if you want to drive some long-term benefits from this cyclical opportunity.
We’ve had many clients who have been trying to purchase a property in the $2-3 million range in Sydney who have been outgunned at auctions in recent years. These higher-quality properties in good locations have seen strong demand throughout the year and are also seemingly weathering the downturn well. Similarly, they are also not likely to be the properties that will be greatly impacted by distressed sales like some of the first home buyer areas may be.
As interest rates continue to rise and with a large portion of fixed-rate loans getting ready to roll off in 2023, there are plenty of locations that will likely see downward pressure on prices. However, those on higher incomes to begin with, will potentially be shielded from some of these pressures by having the ability to reduce some of their discretionary expenditures. It’s a lot easier to find a few hundred dollars per week when you’re a highly-paid professional couple than if you’re a one-income household of an average wage earner trying to support an entire family and have already reduced any discretionary expenditures as far as possible.
We continue to like the middle ring suburbs in capital city markets that appeal to owner occupiers for this reason and feel that 2023 might be a great opportunity for many of the buyers who have missed out to finally enter the market.
In the current market, we’re seeing prices down across the east coast capital city and regional markets to differing degrees, but the high-quality properties that are unique and have significant owner-occupier appeal are not only holding their value well but are also proving difficult to acquire as there is still a large amount of pent-up demand to play out. This is coupled with a lack of supply of these properties as listings continue to be significantly below their long-term averages and construction of new properties continues to be challenged by cost and labour constraints. It’s the properties that no one wants, that have problems with them and the stretched borrower cohort that are likely to be hit the hardest and will see the larger price declines. However, we do not believe that prudent investors should be considering these assets in the first place.
While everyone is sitting and waiting for a bottom in the property market, just be aware that things can change quickly in all asset markets due to investor behaviour being impacted by sentiment. When it becomes obvious that the RBA is changing course and that sentiment has changed, buyers will again be met with fiercer competition and higher prices.
But for those prepared to act based on their research, you might end up finding that there is good value to be had in the current market and far less competition for A-grade properties that you would actually want to add to your portfolio for the right reasons.