5 Reasons Why The Australian Property Market Is A Good Investment In 2022

The average Australian is now more wealthy than ever

Commbank economists have estimated that households have saved over $200 billion during lockdowns, which has created a huge volume of liquid cash as well which could very well used as a deposit to buy a property. The average Australian now has significant savings. In fact , many homeowners now have 30% more equity than they did two years ago due to rising property prices. These two factors combined with a strong performing superannuation and shares portfolio makes the average Australian is now wealthier than ever. The total Australian residential property market is valued at close to $10 billion, with $2 billion in loans against all residential property market. Even if some homeowners find it difficult to pay their mortgages, or worse, default, the risk to Australia’s residential property market is very low. We know from recent Covid that banks won’t take over your home if you default on your mortgage payments. They will help you in any way they can, even extending your mortgage terms and giving mortgage repayment holidays.

There is no sign of mortgage stress to the majority of borrowers

Although there has been much talk about mortgage stress, the evidence is not clear. While some first-home owners may have overextended themselves or borrowed too much to purchase the wrong properties, overall, the number of borrowers in real difficulty to pay back their loan is pretty low. More than half the homeowners don’t have a mortgage. The other half of homeowners who have a mortgage are ahead of the rest in terms their mortgage payments – infact there is an estimate of over $1.3 trillion in offset or redraw accounts

High inflation harms the economy, decreases the purchasing power and devalues people’s savings. It can also be regressive and affects those most vulnerable to it. It is crucial that we find a way to return to inflation rates in the target range of 2-3%. We don’t have to get there right away.
However, even if rates rise to neutral levels, it will only return them to the level they were three years ago when there was very little mortgage stress.

Supply shortages in the future

According to the most recent report collected by NHFIC , Australia may face a severe housing shortage in the future. The data shows that although the housing supply appears to be healthy in the near term, however, there is data suggesting a significant supply crunch in the future. This is especially true as net overseas migration increases thanks to opening of the border. The demand for new homes is expected to exceed what is available and this will cause a shortage of supply. This is exactly why wise property investors are always looking for an investment opportunity that can either yield them long-term capital growth or a very good rental income.

Strong economy in Australia

The lockdowns that were associated with the outbreaks of Covid-19’s and the Delta variant caused a sharp drop in economic activity in Australia in late 2021. The economic recovery that had been underway for the first half of this year was hampered by this setback, but not stopped. The current economy is performing exceptionally well. Although inflation is a result, rising interest rates are not a cause. However, this will be supported by fuel and food exports that will make a major downturn unlikely. Australia will see an increase in income due to increased tourist spending and the Ukraine conflict. The reason is that the Ukraine conflict has caused a disruption in the supply of energy, industrial, and agricultural commodities, and an increase in demand for metal-intensive defense goods. This has boosted commodity prices. This is especially good news for Australian commodity producers and further evidence that Australia has a strong economy. This is the most recent RBA forecast for future economic growth. The RBA is also optimistic about future job growth.

Australia is in the midst of a rental crisis

While house prices have been declining at a minimum level over the last few months , rental growth has increased. The vacancy rates across the country are at their lowest level in a very long time. The nation faces a constant shortage of rental homes. The shortage of rental apartments is growing, which will only worsen in the coming years.

The already tight rental market has been further strained by the opening of international borders. As the most popular tourist destinations, both Sydney and Melbourne will be impacted by an influx of migrants. Data shows that the country’s vacancy rate has continued to decline. This is the lowest level since 2017 according to Domain. These new numbers are yet another indication that the property market is unlikely to crash.

Although rental demand is increasing and supply is scarce, prices are expected to continue climbing, which will bring more investors back into this market. The bottom line is that you don’t need to worry about how long-term the value of your investment property or home will be. It doesn’t even matter if your property’s value drops by 5-6% if you aren’t selling it to refinance in the near future. This especially applies if your property has appreciated 20-25% over the past couple of years.

You don’t have to believe that property values always rise. The correction phase of this property cycle is currently underway and there’s no sign of a property crash. Boom in any market, whether it be property, shares or bitcoins don’t last forever and neither do downturns. Don’t look for quick wins. Think long-term. Don’t believe all the negative messages you hear in the media. As long as you have enough financial reserves to weather the storm, it doesn’t really matter what the market does in the short-term. Don’t let your emotions dictate your investment decisions. It’s possible that inflation will not control itself for a while and then the Reserve Bank may begin to lower interest rates again.