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7 factors which influence property prices

7 factors which influence property prices
March 11, 2018 Gemma H
property prices

Will property prices go up or down? That’s the question Aussies love to talk about

Australia’s love affair with property is undisputed. It’s the hot topic of discussion around the barby, in boardrooms, even at the hair salon. But when we narrow it down to the nitty gritty, the thing we all want to know is…

Are property prices going up or down?

It isn’t an easy question to answer, because not all markets are the same. In fact, it can be very localised.

So, let’s take a look at some of the biggest influencers of property prices.

1. Population

Did you know Australia has one of the highest population growth rates in the developed world? We are one seriously popular country – everyone wants to live here (even Matt Damon is buying here).

The point is, population drives demand.

Obviously, the causes behind a surge in population have to be taken into account. An increase in birth rate, for example, isn’t likely to impact property prices anytime soon. Immigration, on the other hand, drives stronger demand as increasing numbers of people seek a place to live.

2. Infrastructure

As populations grow, we need new infrastructure to support our way of life – utilities, transport, hospitals, schools etc. And major projects like these boost local economy and create jobs.

New jobs attract more people. More people means greater demand for property.

And road and transport upgrades can drive property prices up as they make areas more accessible.

3. Demographics

When it comes to demographics, we’re talking the who, where, what, why and how people choose to live in a location. But we have to also consider what the demographics currently are and what they will become.

Demographics can have a huge influence on the types of properties in demand. Take baby boomers for example. With record numbers now transitioning into retirement, there’s been an explosion of demand for retirement complexes and properties within coastal settings as retirees seek an easier, more relaxed lifestyle.

4. Interest rates

If you own a home, you probably already understand how interest rates affect your mortgage repayments. But many people don’t realise just how far reaching the impact of a rise or fall in interest rates can be. Low interest rates encourage first homeowners into the market because finance is more affordable. This increase in demand pushes prices up as there’s greater pool of buyers competing for property.

And of course when interest rates are high, property prices can stagnate or fall with less investor activity and buyers sitting on the fence choosing to hold off.

5. Negative Gearing

Just in case you don’t know, negative gearing allows you to claim losses such as interest associated with your investment property against your taxable income.

It’s another hot topic of discussion in Australia because many economists believe it’s contributed to our housing affordability crisis by fuelling investor interest. In fact, a study recently presented to the Reserve Bank of Australia claimed that,

“Close to 75% of households could own their own homes if negative gearing was axed, and house prices would soften by 1.2% while rents would rise “only marginally”.

6. Economic growth

It comes down to simple maths, really. When our economies grow and incomes rise, people have more money to spend on property. On the flip side, when incomes fall or jobs are threatened, people are more cautious with their money. When things get really bad (like during recessions), homeowners often fall behind on repayments and are forced to sell, flooding the market with an oversupply of properties and causing demand to fall.

7. Supply & Demand

When supply outweighs demand, it’s what we call a buyer’s market. Houses stay on the market longer because there are too many competing against each other and not enough buyers, so prices tend to fall. When demand outweighs supply, on the other hand, the market turns in favour of the seller and strong competition drives prices higher.

There’s also such a thing as a balanced housing market where supply matches demand. Property prices in balanced markets tend to stagnate or increase only slightly over time.

Housing markets can shift from a buyer’s market to a seller’s market in a short space of time due to many things including consumer confidence, the number of new houses being built, how willing banks are to lend and many of the factors mentioned above.

How do you ensure the value of your property goes up?

The short answer?

Hold onto it for as long as possible.

Property markets are complex beasts. It’s what makes them such fascinating topics of conversation. We can talk about property til the cows come home because there are so many factors pulling together to influence the direction prices head.

Most experts will tell you property needs a long-term vision to be an investment success. The longer you hold onto it, the higher your chances its value will go up.


Disclaimer: This article is general information only and is intended as educational material. REALas nor its associated or related entitles, directors, officers or employees intend this material to be taken as advice either actual or implied. You shouldn’t act on any of the above without seeking qualified advice, which takes your individual circumstances into account. 


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