Michael Love on What’s Next for Melbourne Real Estate

The fluctuating Australian real estate market is talk of the town at the moment. Daily, we’re exposed to fear-mongering headlines warning of property market bubbles bursting. But how much of this opinion is informed by fact – and how much is a concerning media beat-up? In this blog, Love&Co Partner Michael Love offers insights on what’s next for Melbourne real estate.

The past couple of years have seen incredible growth in property values all over Melbourne. Auctioneers were selling homes for tens of thousands above reserve, lenders accommodated bigger loans than ever before, and first home buyers cashed in when stamp duty was abolished for properties under $600k. Some lucky investors and homeowners have seen realised capital gains that would usually take 15 years prevail: it’s only natural that this relentless growth had to slow down at some time.

It’s time to take a deep breath, homeowners. What we are experiencing in today’s market is not an end-of-the-world adjustment. Prices are in a state of correction following a period of robust growth in an enthusiastic market – but a number of restrictive measures have placed pressure on would-be borrowers, meaning finance is less accessible than it has been in the past.

It’s important to remember that the real estate market and the economy work in cycles. There are periods of high demand and investment, and periods of low demand and reduced spending. In periods of adjustment, the media can play a dangerous role – concerning many people unnecessarily. When the Global Financial Crisis hit, the media spun tales of property market crisis and suppression. In reality, it was just 3 years before we saw growth in the market again – which is not that long in the scheme of things.

Real estate is not and has never been a stable short term investment. This is truer than ever now that we’re seeing increased costs associated with buying and selling. With higher values come higher stamp duties and capital gains taxes. By taking a longer term approach to property investment, we can appreciate cyclical changes for what they are. The value of a property is irrelevant unless you’re planning to sell. My advice to owner occupiers would be not to stress about what next door sold for – unless you intend to sell soon. Your neighbour’s result is simply not relevant – if you are making your repayments and maintaining the roof over your head, it’s just a waiting game for the next peak in values.

Purchasing real estate for short-term growth has never been advised as a sound strategy. Dips in demand may impact on property values in the short term, but in the fullness of time they will restore and continue on an upward trajectory. Looking back at the past 100 years in real estate, there have been tough times and there have been golden times. Both will come and go, but the investors who come out on top are those who focused on maintaining their ownership of real estate, and played the waiting game until the next cyclical change.

I do believe the media are responsible for unnecessary fear-mongering concerning the real estate market. The public are susceptible to believing what they read in the papers – I find myself reminding clients that the aim of media is to sell newspapers, not to build wealth for its readers! In terms of what’s next for the property market in Melbourne, I expect to see a huge industry of second tier lenders and as a result, plenty of refinancing. The big banks may come under more scrutiny as competition increases from these second tier finance options. The main takeaway in this think-piece is that markets will move – and yes, they’re moving now. Owning real estate is about perspective. Will you treat period in the market’s cycle as the end or the beginning? It’s your choice.