As we step into 2025, an Australian property expert has issued a stern warning against investing in the local real estate market.
Aaron Scott (pictured above right), co-founder of bRight Agent, suggested that the risks far outweigh the potential gains in the current economic climate.
Despite a positive annual growth rate of 4.9% in 2024, the trend is clearly on a downward trajectory, particularly in Sydney, which saw a significant 1.4% drop over the past three months alone.
Scott highlighted the deceptive allure of recent market booms.
“It’s dangerous to think that just because property has been hot over the past year and a half, that it will continue to be so over the next year or two,” he said.
Scott identified several critical factors that prospective investors should consider before entering the Australian real estate market:
The recent surge in housing prices is largely attributed to a mismatch between supply and demand, driven by increased net migration.
“This is an artificially generated situation in the sense that net migration could be reduced to zero rather quickly – especially on the back of a federal election in early 2025,” Scott said.
He predicted dire consequences for the housing market and the economy should migration policies tighten abruptly.
The property market’s dynamics are also influenced by mean reversion, where prices adjust over time to reflect long-term averages.
“Neither the weakness in the Sydney and Melbourne markets, or the significant growth in cities like Perth, Brisbane, and Adelaide, have been particularly surprising when you think about mean reversion,” Scott said.
He cautioned that as properties in cities like Perth become more expensive, their appeal diminishes, potentially leading to a slowdown.
Many Australian households are nearing their financial limits, exacerbated by ongoing mortgage stress and rising living costs.
The recent rate hikes by the Reserve Bank have not effectively curbed price inflation, leaving many families at the brink of their affordability threshold.
“It’s fair to say that real wages are starting to rise but remember that inflation compounds... so when you think of it that way, wages still have a long way to go to get back to our pre-COVID norms,” Scott said.
Selling real estate is notably more costly than liquidating stocks or bonds, with commission rates and marketing fees significantly impacting overall returns. Services like bRight Agent help investors navigate these costs by facilitating comparisons of agent fees and services, ensuring more economical transactions.
While Scott’s advice primarily targets investors, he acknowledged that the dynamics differ for those purchasing homes for personal use.
For investors, however, he suggested looking beyond the real estate market for less risky and potentially more profitable opportunities in 2025.
“But if you’re just thinking about property as an investment, then I think there are better options elsewhere, at much lower risk, over 2025,” Scott said, signaling a cautious approach to property investments in the current economic landscape.
Read the bRight Agent blog post here for more information.
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