Discretionary buyer booms are coming
Firstly, let me explain what I mean by “discretionary” purchases. These are property purchases made by people who don’t intend to make the dwelling their home, and neither do they plan to rent them out either.
This may seem like an unlikely thing to do, yet there are around 600,000 such properties located around Australia.
These properties are commonly known as holiday homes or weekenders, many of which are located in popular coastal, lakeside or riverside destinations while some are also tucked away in more remote hinterland areas.
There are two different types of people who buy such properties. The first are high fliers who have earned a great deal of money in a reasonably short time. They are typically mining construction workers during mining booms or share investors during stock market booms. Some of these cashed up buyers purchase trophy type units in fashionable holiday areas such as the Gold Coast not so much to live in as for the bragging rights that go with them.
If the financial situation of these buyers deteriorates when the boom ends, their trophy type purchases are the first to go, and it’s this “discretionary” buying and selling in locations such as the Gold Coast which generates much of the unit market booms during the good times, and the busts which inevitably follow when the booms end.
There is another far more significant type of discretionary buyer in the market right now and the numbers of these buyers will grow in the next few years. The reason for this is the way that the Sydney and Melbourne housing markets have performed over recent years.
Over the last five years, housing values in Sydney and Melbourne have grown rapidly and delivered their owners a huge increase in equity. This is because the benefit of these increased property values applies to all homeowners, even if they didn’t buy or sell during the heady boom years.
The numbers involved are truly staggering – around one million fully owned homes, and well over one million homes being paid off with a mortgage plus another one million investor owned dwellings have all doubled in value during the last five years.
The total increase in property values is estimated to total more than $800 billion, but despite this huge amount of gifted capital, most of these households have been content to stay in their homes with no intention of upgrading. Many are also not inclined to risk their new-found largesse by entering the market as property investors, particularly when the growth appears to have ended.
Increasingly though, homeowners in Sydney and Melbourne are finding that they can make use of this new equity in a different way – to buy their own holiday home. They now have the means to buy a weekender in one of their favourite getaway locations and may also be tempted to turn this into an income generating opportunity by renting the property out for Airbnb or other short-term rentals.
The typical locations for such homes are in coastal towns, inland lake resorts and popular tourist destinations around Victoria and New South Wales which are easily accessible by road. With school and work finished for the week, the family packs the car and in a few hours they are a world away.
These property purchases are real “heart not head” territory and now occurring in popular holiday destinations such as Victoria’s Gippsland Lakes and Port Stephens in New South Wales, where several locations have high price growth potential.
We are already seeing increased buyer demand and price growth occurring in many such areas. As prices rise and then become unaffordable, the buyer demand shifts to other nearby locations where prices have not yet risen.
By identifying the best areas and the right types of properties, investors can get in first and then benefit from the uplift in prices. The trick is to buy before the price growth starts and then sell to a holiday home buyer before the growth is about to end.