Hold your houses! The Australian Bureau of Statistics (ABS) Building Approvals data has revealed a 34.9 percent plunge in unit approval in May.
There’s no secret we’re only just starting to see the impact of COVID-19.
Wealthi’s co-founder Peter Esho says the plunge in approvals from last week’s data is only going to be made worse by developers finding it difficult to access credit while investors reap the benefits of very low rates.
Whilst the data revealed building approvals declined across every single state and territory, the property professional, market commentator and entrepreneur says the only thing coming for the property market is higher prices.
Mr Esho believes this new playing field will steer to higher prices.
The property professional says many of the real estate developers he works with are pushing back their projects, leading to an inevitable looming supply shortage in 2021/22.
The Wealthi rationale follows basic economic principles, supply vs demand.
“We’re seeing all the signs of supply falling and quite rapidly,” says Mr Esho.
“We went into this crisis with some oversupply, particularly in apartments along the east coast of Australia, but this is being absorbed by natural demand and first home buyers making the most of low rates to get into the market.
“We’re not completely out of the woods yet; in a couple of years, the absence of new supply will start to bite.”
Many economists are only talking about prices in the next few months.
Mr Esho and the Wealthi team are taking a longer-term view and looking two to three years out and seeing some big price pressure.
The record low rates are incentivising investors to get into property, especially those prepared to take a risk.
With offshore investors wiped from the market due to the pandemic, the existing stock is being absorbed by local investors with access to finance.
“It’s also becoming very expensive for real estate developers to fund their projects,” he says.
“Many are indicating they’ll push their project launch out by another six months, that can lead to big upstream delays for the whole picture.”
So when can we expect to see the supply cliff kick in?
According to the Wealthi co-founder, we can expect the cliff to kick in late next year when the dust settles and we begin to feel the real impact of the pandemic.
“Once we fall off the supply cliff, we’ll see a large spike in prices in 2022 which will take years to recover,” says Mr Esho.
He suggests holding your houses for the long run until the dust settles and the supply gap starts closing.
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