10 Micro Economic Elements That Are Influencing Today’s Property Market
We are headed towards an economic divide in the future, and if you’re on the wrong side of it when the cash flow stops, you’re going to face some tough times when it comes to getting into real estate.
Right now, it is crucial that property investors are making sound decisions. Doing so means knowing what kinds of external elements are impacting your real estate portfolio.
For instance, there are a number of micro economic influences that are currently affecting the market – whether you’re holding on to a property, getting ready to sell or looking to expand your portfolio – you need to understand what is shifting and what you can use to your advantage.
Here are the top ten micro economic elements that you need to be across:
We know that many retirees are doing it tough and feeling stuck. This is because traditionally they would make money by having savings, but right now, having savings in the bank is worthless.
There is basically no money being paid out in the form of interest, with a term deposit today sitting at 0.7 per cent. However, property can provide a much more formidable return than the bank at the moment. At a minimum, you can find a solid rental return for five or six per cent.
What this means is we’re likely to see a lot of traditional cash investors revert back to the real estate market in order to help generate some cash flow.
THE UNEMPLOYMENT RATE
One of the downsides of where we are right now as an economy is the unemployment rate. Prior to Coronavirus the Australian Government was on track for a four per cent unemployment rate.
We certainly saw this rise a lot in the middle of last year, however it has started to drop again as more Australians have been able to find work in the wake of the pandemic.
It’s likely to take a few years to get that rate down again, however we should also remember that Australia always includes part-time workers or people doing a few shifts in its unemployment figures. So, for a very long time, our unemployment rate has been much higher than what it usually is portrayed at.
While loan deferrals are slowly trending down, there are still about five to eight per cent of loans across most states that are on holiday – with the exception of Victoria who have a much higher rate due to their incredibly tough lock down in 2020.
With these loans soon ending alongside the conclusion of JobKeeper, which both helped exponentially in getting through the worst parts of the economic fallout, we expect that people will start to look at their real estate in a very different way.
MONEY REMAINS CHEAP
Money again is a lot cheaper than it’s been in a very long time, which means the idea that people will borrow extra money to then spend more is potentially occurring.
In fact, we’re seeing that in the property numbers. Record sales are starting to occur as consumer confidence begins to grow again in real estate.
The effect of this also comes from the fact that good, functional and liveable properties are undersupplied, so people are paying way above the reserve to secure them now that they have access to more money to borrow and spend.
LIVEABLE AND FUNCTIONAL PROPERTIES
Liveable neighbourhoods and functional properties are something I talk about constantly. Why? Because they’re incredibly valuable and are one of the biggest demand drivers right now in the market.
The same is playing out in the land market space. Land has always been valuable but right now vacant blocks of land are selling for record amounts because people want to build a functional property on them.
TIGHT VACANCY RATES
A lot of our cities are in the middle of a rental crisis because demand is so high. Without enough properties to rent people are starting to pay over the rental market number just to secure the right property (again functionality and liveability is just as important for tenants as it is house owners).
This is because the stock is seldom getting to the rental market. The supply that Australia does have of real estate is being sold off to first buyers. So, rents are starting to surge, and what may be a five per cent yield today could very well jump to a six per cent return soon.
OWNING IS NOW CHEAPER THAN RENTING
Increased rents have also led to it becoming less expensive to buy real estate. Young people especially are now able to secure a cheaper home loan with repayments that are lower than what they would normally fork out renting.
Households can end up saving thousands every month by owning real estate instead which will only further encourage people to join the demand pool.
THE VALUE PROPOSITION OF MONEY
It can be difficult to comprehend that someone would pay more for a property than what it’s worth today. Right now, we feel real estate is expensive. We look at a one-bedroom unit for $500,000 and think ‘that’s too expensive’.
But what if I was to tell you because of the transformation of money and rate it is occurring around the globe, property hyperinflation is going to be very real. A $500,000 property that we think is expensive now might be worth a million dollars in a decade’s time.
The challenge for people is to understand that your cash is not going to keep up with the cost of goods. You’re going to need more money to get the same thing just a few years from now. This is why the people who are hunkering down on cash right now need to really revisit their strategy. Is it actually good to have cash in the bank or should you be putting that into real estate?
GOVERNMENT INCENTIVES AND TAX BENEFITS
The biggest micro economic element of them all has hands down been the hundreds of billions of dollars coming into the economy and being given to us in the form of tax cuts, business relief and grants. The flow on effect has been that people started spending again and created more interest in wealth.
While the federal government has injected a lot of money to stimulate growth in all areas of the economy, real estate in particular has flourished because the incentives and tax benefits have been incredible.
However, this won’t last forever. By 2025 the federal government will need to start being paid back that money – lending will slow, spending will slow, and taxes will be raised.
THE TIME TO INVEST IS NOW
All of these micro economic influences are absolutely headed to real estate if they’re not already influencing the market. If you own the right property now, you’re going to end up wealthier in the long run.
It’s imperative that you get into the real estate market before 2025 while a lot of these micro elements still work in your favour. Take the first step by signing up for a free property investing night with Positive Real Estate. You’ll walk away with the confidence to make smart, informed decisions about your portfolio.
By Sam Saggers