25 Oct David Tricarico takes a positive look at Australia’s growing property sector.
Much has been made of the recent dampening in property prices seen across our major capital cities, but more importantly the two behemoths on the east coast, Melbourne and Sydney.
According to Core Logic, in the past twelve months, Sydney prices have fallen by 6.1%, while Melbourne has witnessed a reversal of 3.4%. These declines have commentators throughout the nation calling the end of our property boom, and some even boldly predicting it to be the beginning of a significant crash! However, the truth is much more nuanced than this.
Melbourne is set to overtake Sydney as Australia’s largest city by 2026.
Based on current population growth trends, we will continue to see a rate of around 2.5% (like the last decade), which accounts for 37% of Australia’s growth rate! We are expected to reach 8 million people in Melbourne by 2037. These are astronomical numbers, which place Melbourne in the same breath as global cities such as Madrid, Kuala Lumpur, and Chicago.
Doubling of our population in a mere 30 years will require enormous planning efforts on behalf of both government and private enterprise. We are beginning to see this now with the Victorian government having already pledged $13.7 billion in infrastructure spending just to catch up to our current needs. We are in an unprecedented time as Australians. Historically, we have been quite a unique country in the context of the world. Tokyo, Shanghai, Jakarta, Delhi, & Seoul, all these sprawling metropolitan cities currently have more residents than our entire continent! Even New York City has roughly 80% of our population living within the five boroughs. To even further hammer home this point, we are the 6th largest country by landmass in the world, with the population of Madagascar.
What we have started to see in Sydney and Melbourne over the past 8 or so years is not a property bubble fuelled by excess and greed or lax regulation, but rather a global recognition of the intangible qualities Australia possesses. The world has just begun discovering how amazing our beautiful country is!
Australia is now (rightfully so) being seen in the same context as global countries like Germany, the UK and the US.
With air transport prices plummeting since the turn of the century, people are no longer wondering where Australia is, but how quickly can they get here.
All of this is to say, our recent uptick should be encouraging signs for our entire economy, especially property. As we continue to see an increase in population, a steady rise in our take home wages, and confidence returning to all sectors of the economy, the property sector will continue to show strength and resilience. We have seen property booms before in Australia that have been far greater than what has recently occurred. In the five years leading up to 2003, national prices rose by 60% compared to 37% with the same time frame to 2018.
The recent downturn can be attributed to tougher prudential lending requirements by the banks in the face of a number of macro-economic issues. This is the regulators being careful, not scared. We have been here before, and we know what to expect. However, we are in a unique situation where this growth is not the “Wild Wild West,”but rather natural given the growing trend of our nation, to one of global statue.
David Tricarico is the Director of Adepto Co.