The new growth cycle in the property market has well and truly started and with it the discussion of Sydney real estate being overpriced and that recovery of the property market is the start of another (mythical) price bubble that scares everyone but never actually eventuates.
I have no doubt that the ‘experts’ talking about a potential bubble have data and spreadsheets to back up their theories. But I can share with you after 30 years in real estate I have heard these theories since I’ve been operating in this space.
We’ve just released our latest McGrath Report, in which we predict a continuing residential property recovery Australia-wide in 2014 – including Sydney, Brisbane and the Gold Coast in particular. There is much reasoning backing up our predictions, so if today’s bubble talk is unnerving you, please download a copy from our website – mcgrath.com.au so you can have an informed understanding of what you can expect in the market going forward.
The idea of a price bubble is pretty scary to those with little or no industry or buying/selling experience – which can be many of us. Property is a very expensive asset and the idea of prices “bursting” would undoubtedly make some buyers concerned and delay. And all that does is ensure they miss out on a great opportunity to build wealth through one of our country’s most reliable asset classes.
Even the Reserve Bank has described predictions of a housing bubble as “unrealistically alarmist”. Dr Malcolm Edey, RBA Assistant Governor says: “We shouldn’t be rushing to reach for the bubble terminology every time the rate of increase in house prices is higher than average, because by definition that is 50% of the time.”
The first time I heard the bubble talk I actually thought about changing careers. I was very young and I thought, why be in an industry that is overpriced and about to collapse? The next time I had a similar amount of fear, but hung in there. As we now hear the doomsayers once again, I’m ignoring it and so should you. The simple fact is it hasn’t happened – and it won’t happen. These pundits are ignoring two fundamental elements that apply particularly to Sydney – it continues to experience a housing shortage factor and accelerating population growth. The NSW government expects the city to grow to 5.8 million people by 2013.
After all, when I was selling two bedroom terraces in Paddington for $100,000 these same bubble theories were as strong as ever. What are those terraces worth today? Hard to secure one for less than $1.2 million…
Sydney is a huge international city. It is the preferred destination for a large number of people within Australia as well as the emerging China and Asian markets. It is the New York of Australia. Yes, it’s fair to say that it will get harder for young first home buyers and couples to own their dream property in their dream suburb. But certainly not impossible. There are still plenty of opportunities for young Sydneysiders to get started with a purchase under $500,000 – even in the trendy inner city suburbs.
And when that becomes harder the market will discover or create new destinations, new trendy villages, new desirable pockets. It’s all part of the evolution of a big city. Remember, Paddington was once a slum suburb, as was Notting Hill in London. The world changes.
Plus, not everyone wants or needs to live in the bustling inner city. Many amazing lifestyle choices and suburbs lay just beyond the inner city ring and new infrastructure will unlock these pockets. This is really important and it’s why we have dedicated an entire section of our latest Market Report to new infrastructure and the sleeper markets it will benefit.
So, no bubble. No collapse. Simply healthy growth in a world-class city.
Next week, I’ll talk you through more of my predictions for the residential market as we head further into this new cycle of growth. Stay tuned!
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