Relying on natural growth is a lazy and slow strategy, mainly because you’re just waiting for time to do its job. But it’s nice to have, though.
Plenty of people buy and hold property and wait for prices to go up naturally. While you can make money down the line, it’s a lazy way to go about it.
And if you think this is safer, think again.
You always have to take a risk at some point in investing. With this, you’re hardly taking any.
Also, we are dealing with COVID at the moment, which is a bigger crisis than the GFC a dozen or so years ago.
With this in mind, I’m going to talk about trends that add pressure to the demand and supply curves. They will give you an indication of what will happen with natural growth.
Banks and monetary policy are highly dependent on each other, and so they’re grouped together.
The current situation is pretty extreme, as you may have guessed. Despite the situation, the banks are doing their best to cope. But remember that we’d just come out of a tough period for investors where it was hard to get loans. A lot of pent-up demand went unsatisfied then.
This means we entered the COVID situation with higher demand than supply in most cases. And there was upward pressure on prices because of the unmet demand.
And now, the central bank’s monetary policy is off the charts. A tremendous amount of money is getting thrown into the economy – four times more than what happened during the Global Financial Crisis. The quick and timely money is giving real estate markets a nice cushion.
Australia is always growing in population. And all indicators show that it will continue to grow after COVID.
That’s of course driven by migration into Australia. It might not grow as significantly this year or the next. But it’s going to ramp up after that. Why?
Australia will need more money from abroad to help the economy. The country has a relatively small economy that’s lacking in depth and strength in comparison with other Western economies. There’s also plenty of land here. That’s why we’ve always relied on migration and will continue to do so in the coming years.
That’s equivalent to more demand and upward pressure on home prices.
At the moment, consumer confidence is declining, but you bet it’s going to bounce back.
If you look at the bigger picture, consumer confidence was doing pretty well before COVID. The economy was healthy and going in the right direction. Of course, consumer confidence followed and was going in the right direction as well.
Right now, many don’t know what is going on. There are lots of heads in the sand now and the result is a hibernation period. But, what if you look beyond that?
Australians will go back to being Australians and consumer confidence will pick right back up. Things will recover and people will be buying and upgrading homes again.
Government policies are a big indicator of trends and how the market will respond. There are several levels of government, as you know.
At the most immediate level, you have the local council. And if the council is not friendly to development, you should target somewhere else. There’s no point in beating your head against the wall and try to change the council. If they don’t want to play ball, go somewhere where they want to play.
Further up is the state level, and a state government can also be pro or against development. Again, if they’re not friendly, you can just go and invest somewhere else. It’s the same with the federal government, except that’d mean investing overseas.
What we’re going to see on the other side of the virus are massive government incentives.
For instance, you can expect state governments to put a lot of money into infrastructure in the regional areas. Cities will respond sharply and quickly. But the regional areas will take more time to recover.
With the expected dramatic rise in spending, certain areas of a state and the country will benefit more than others. But that’s all dependent on state and federal spending. Of course, the local councils don’t have the money to spend nearly as much.
With all the incentives to come, industry spending will be massive in the early 2020s. And some industries will be a bigger winner than others.
You can break population movements down to the county, state, and city levels. And you can even watch a particular suburb.
Observe whether there are more people moving in or out, as well as where are they coming from or going to. Their backgrounds may dictate the most popular type of housing to buy or rent.
If it’s a transient population, you will likely need smaller and shorter-term accommodations – rooming houses, caravan parks, and such.
To invest in the Gold Coast, for example, you will need more expensive housing. And if you’re in a retiree market, you’re going to need houses with little gardens.
In short, consider how long they’re going to stay. In mining towns, for instance, the stay could be short-lived.
We’ve established that the population of Australia will increase in the coming years. And that the capital cities, particularly Sydney and Melbourne, are the most popular destinations.
Some experts project that Melbourne will exceed Sydney in population in the next couple of decades. Brisbane and Perth will also be growing, but to a lesser extent. And this is followed by the other capital cities.
This is why Sydney and Mel should outperform all other cities in terms of natural growth. But there’s a catch:
If these cities interest you, you should get in as soon as possible. Invest on property before prices go up too much.
If you want to know where the market will be heading after COVID, you now know what to look for.
Banks and governments can exert pressure on home prices. That’s also true of population growth, movements, and government policies.
And of all the areas, Melbourne and Sydney are set to have the biggest population growth. Naturally, this makes the two biggest cities the best places for natural growth in the foreseeable future.