It’s been a seriously strange time for property investors. So, it’s understandable if you feel like you’re having an out of body experience?
We’ve experienced turbulence in Sydney and Melbourne house prices while Brisbane and Adelaide’s quarterly growth shrugged off the gloom rising at 20 plus per cent. Then inflation spiked sharply to 5.1 per cent at the end of the March quarter, sparking a market frenzy.
We’ve had the Sturm und Drang of a federal election. The Reserve Bank lift the official cash rate to 0.35 per cent, the first increase since 2010. It’s been quite a moment.
Property A Sound Investment Strategy
No one likes watching our purchasing power being eroded. To counter the impact of inflation many mum and dad investors are looking to hedge against inflation by doubling down on their property holdings.
Real estate has long been viewed as a hedge against inflation, as rent and property values frequently rise with inflation. This view is supported by historical data which suggests real estate is indeed an effective inflation hedge.
Mums and Dads Investing for Themselves
While the increase in the cash rate has roiled commentators almost as much as talk of rampant inflation, investors continue backing property while they can still access comparatively ‘cheap money’.
Even with an interest rate increase, this has only emphasised the importance of discerning investors selecting property assets that are going to increase in value as a hedge against inflation.
The lingering impact of the past 16 months of double-digit growth in property values has seen mum and dad investors enjoy substantial increases in their home equity together with steady rent increases in a tight rental market.
These market forces have put Mum and Dad investors in the box seat to continue building their property portfolio.
Little wonder then that Mum and Dad investors are taking advantage of their buoyant home equity levels to target investment properties at affordable price points in prime city locations.
Regardless of where interest rates go, retail investors are still keen to get into the market.
Have Mum and Dad Investors Gotten Over FOMO?
FOMO (Fear of Missing Out) is fast disappearing from our property market. Buyers reflecting a sense of caution seeping into the market are increasingly taking their time to make strategic investment decisions.
And that’s a good thing!
Last year prospective buyers took shortcuts and cut corners to enter the market. An investment strategy that usually ends in tears.
Affordability Rears Its Head as A Market Constraint
Affordability is emerging as an issue, as many investors have experienced minimal wage growth while property prices have boomed.
As mum and dad investor priorities change, some buyers will agree to pay a slight premium for properties with a little more space. They will pay a modest premium for the ability to work, live and play within a 20-minute drive from home.
They are looking for schools, shopping, access to recreational and sporting facilities, the strength of the local community vibe, availability of business services, and the prevalence of secure jobs within a 20-minute radius.
Regardless of the outcome of the federal election Mum and Dad investors remain keen on the property market. They see real estate as an effective hedge against inflation. Hence, investor interest remains vibrant, even as a super-hot property market slows, mortgage rates creep up and the supply of housing stocks contracts.