There’s a lot of talk about the Australian property market of late. In particular escalating house prices, lending restrictions and creating a soft landing for home owners and banks.

The problem with making any outrageous statements about an apparent property bubble bursting is that commentators have been doing it for years, and over time our property prices continue to grow.

But there are some key matters investors must consider when assessing their current investment strategy and these are: not all markets are the same; not all product is alike; and ultimately, servicing is critical.

There’s Australia, and then there’s Sydney and Melbourne

Let’s face it, the commentary is about the affordability of homes in the Sydney and Melbourne markets, and the impact of foreign investment on the skyrocketing property prices in these cities.

But when we look at these markets, especially Sydney, its important to look at not just the last four years, but the last 15 years (at least).

A lot of money was spent on public and private infrastructure leading into the Sydney Olympics.   Off the back of major projects and strong employment, Sydney responded by building plenty of homes to accommodate their workforce. Then, in the ten years following the Olympics, the Sydney property market remained relatively stable. That is, there was enough housing supply to meet the demand of a relatively flat population growth rate.

During this time Queensland, Western Australia, and to some extent the Northern Territory were attracting large numbers of workers as the mining boom continued to flourish.

Toward the end of the Noughties economic change was in the wind which ultimately contributed to the current states of play in the Sydney and Melbourne property markets.

The GFC momentarily made houses more affordable and stocks less desirable.  There came a decrease in interest rates and ultimately cheaper money.   Most interestingly, there was a significant positive impact on population growth in these markets through Chinese and Indian migration, as well as mining workers relocating back to the east coast capital cities.

These factors, alongside a limited supply in housing, created the perfect storm for home owners and property investors with their eyes on the big two Australian cities.

But while Sydney is now experiencing its fourth consecutive year of high double digital percentage growth (Core Logic reported this week that Sydney has had 18.9% YOY growth) leading into this event, its prices remained relatively stable for almost 10 years.

“It’s true that Sydney and, to some extent, Melbourne property prices are becoming highly unaffordable.”

The impact of a catch-up supply wheel, growing populations, international investment and cheap money is that many people, especially young Australian families, are now priced out of the market.

Here come the regulators

The public is concerned, the politicians have no answers, and while the Reserve Bank continues to keep the cash rate on hold, APRA and the banks are now looking at policies that will try to diminish demand for property by attempting to strangle the flow of money, debt in particular, into the Australian property market.

But, there’s the Australia property market, and then there’s the Sydney and Melbourne property markets. Tighter lending policies and restrictions on international investment see many Australians outside the big two cities wondering how these measures will impact their standard of living.

What impact will a potential decrease in the rate of property price growth have on the price of their home, on their job market and their ability to service their loans?

Perhaps the regulators need to worry more about encouraging large scale infrastructure investment that will boost jobs and expand the economy than strangling the flow of money to home owners and investors.

Buy land -they’ve stopped making it!

The real concern is the product markets within the markets.

Not all product is alike and while residential towers continue to sell off the plan, the risk on completion is that valuations do not match prices and the exposure is high.

Units have never been able to maintain the same growth rates and sustainability in pricing floors as homes. This is because when property markets boom and the skies fill with cranes, we tend to get an oversupply in apartments and units.

Homes have a land element and one of the critical responsibilities of government is to ensure there is a reasonable supply of zoned land for the development of affordable housing.

Juggling the balls between supply and demand is a delicate one but it’s clear the ongoing growth in Sydney and Melbourne house prices has been the ability for the big wheel of development to keep producing supply to meet the above mentioned demand circumstances.

But as these markets become less and less affordable, home owners and investors are now looking at the more affordable markets like Brisbane and the Gold Coast which still offer strong employment bases and a more desirable standard of living.

Queensland is the affordable option for first home buyers and investors alike

Overall “dwelling” prices across Australia are increasing, according to Core Logic, but while Sydney median dwelling price is $795,000 and Melbourne median dwelling price is $610,000, the median dwelling price in Brisbane is just $485,000.

Most recently it has been released that the median house price on the Gold Coast is now $600,000. Even so, it makes southeast Queensland (SEQ) a far more attractive market for home owners and investors. Already we are seeing a significant percentage of our sales in South East Queensland stock sell to Sydney and Melbourne home owners and investors.

We’re also seeing a strong trend in Asian or overseas investors buying our stock using cash in favour or borrowing money to invest in more expensive markets. Ultimately demand is on the rise in Queensland, with more sustainable growth forecasts and much stronger rental yields for investors and super funds.

The ball is now in the court of the local councils and Queensland Government to ensure major project facilitation is maintained well beyond the 2018 Gold Coast Commonwealth Games to attract and retain more jobs, increase population growth trends and ensure ongoing demand for housing.

My father always told me to live within my means

One of the key concerns for economists and the banks is the ability for borrowers to continue to service their debt levels. The changes in policies to lower loan to value ratio (LVR) levels to investors and put some restrictions on interest only loans, especially to principal home loans, is responsible lending.

A critical concern for the banks with particular exposure to interest only home loans in Sydney is that once rates move up a few basis points, defaults will also be on the rise. Hence, regulators are looking at how to implement a soft landing in these markets.

Australians have contributed to the rising cost of homes by pushing the boundary on income to price ratios. Australians are spending more income of their monthly mortgage than ever before. This is partly due to increased demand from investors and international buyers but also due to segments of the market trying to live beyond their means.

In a world where we demand instant gratification, having the most desirable home in a location most ideal to our dialled in standard of living has caused some lenders to dangerously increase their borrowings.

Home owners should consider how they approach their lending strategies and always implement a principal and interest loan with a mortgage reduction program on their own home.

While investors should consider which product, in which market is right for them and their circumstances. Investors should take a long term approach to property investment as while markets in the long term trend upwards, there are cycles along the way.

If the end game is to improve wealth through successful property investment, then considering location and product type, rent and tax effectiveness, loans and debt reduction, should all be part of the plan.