A significant moment in time for property. Only twice in the last 16 years has this phenomenon occurred, whereby divergence and disparity occurs between price and yield to such large proportions.
- The intersecting lines cross over at what is deemed to be fair value early to mid 2014
- There has been a 25% decline in yields for return on investment since 2011
- In 2014-2015, the property market saw huge increases in investor activity, to the point where nearly 7 out of every 10 buyers were attempting to purchase investment property. In recent open house activity, investors have declined significantly to 1 in every 10 buyers.
- Rental rates have fallen, and volumes have declined simultaneously when property prices have risen exponentially.
- The only saving grace for investors and Landlords alike, is the gap between monthly rental income and actual bank repayments have lowered due to the continuing cuts to the cash rate from the Reserve Bank of Australia.
The previous occasions that this cross over occurred - indicated that within six months, the price of property started to decline. Financial markets are further indicating/predicting lower interest rates for 2017. With this in mind, and the combination of low supply of property available to buy, the property prices may continue on this line of heightened outcomes, however, the variables such as;
- umemployment, supply, lower inflationary data, retail figures and CPI continue to influence further pricing highs.
Speaking with several of the larger banks this week, rate cuts are not being fully passed onto the consumer, wages are suggested not to increase but freeze.
The word on the street from key bank valuation consultancy firms is that banks are concerned with high levels of housing debt, and LVR's which have been consistently 80-90% deposit to lend amounts have been considerably reduced to 70-80% for residential, and commercial loans from 70% to 60%.
The dynamics are changing, so be well advised and educated during your future property transactions. Some investors are choosing to cash out, and realise the massive gains by simply having had the courage to invest.
An apartment purchased in Freshwater in 2011 which was leased on settlement, it's capital growth over time versus actual weekly rental achieved converted into yield.
From The Principals Desk @ SEA