On November 5, 2015

What does the future hold for investment property?

As the curtains on 2015 are slowly drawing to a close, you might be wondering how the investment property market has fared, and what is in store for the future.

The capital cities achieved a combined housing value growth of 11.3 per cent in the 12 months to September.

As this should come as news to no one, as it's been a time of breakneck growth in Australian residential property.

According to CoreLogic RP Data's monthly indices, the capital cities achieved a combined housing value growth of 11.3 per cent in the 12 months to September.

However, look past these numbers and you may notice that it's been a mixed bag. These hefty values have been mainly driven by Sydney and Melbourne's star markets, which recorded respective median value growths of 16.72 and 14.22 per cent.

Furthermore, investor activity has been a strong driving force behind this momentum. According to the QBE's Housing Outlook Report of 2015 to 2018, they were "the most active market group", making up about 50 per cent of all home loans.

Clearly, it's been a busy year for the property investment scene.

Applying ice to the burn

QBE's Housing Outlook Report forecasts a cooling of prices in the coming years.

Take a look at Sydney, the nation's leading property market, which had a house median price growth of 22.3 per cent in 2015. In the following year, this is expected to drop sharply to 7.3 per cent. Follow on another year beyond, and the report predicts that prices will not only cease to grow, but experience a decline of 2.7 per cent.

Melbourne, the country's runner up, looks to be no different. This year, the city recorded a house median price growth of 15.7 per cent in 2015. Again, this could change, with prices forecast to experience zero growth in 2017.

There are several driving factors for this. One is the rising supply of new housing which should help meet the demand for real estate in these cities. The Australian Bureau of Statistics reported record high building approvals and activity this year, with 211,976 new homes started in 2014 to 2015.

The tightening of investment lending from the government has also been slowing demand for housing and in turn, price growth.

Interestingly, Dr Harley Dale from the Housing Industry Association has noted that it was this flood of investor funding that has also boosted residential construction work.

The same investor activity that has pushed prices up is indirectly helping the market to cool through new housing constructions.The same investor activity that has pushed prices up is indirectly helping the market to cool through new housing constructions.

What does this mean?

If you're an investor thinking of reaping massive capital gains you'll want to sell your property when the market is at its very peak.

While it might all sound a little gloomy, don't take this as bad news by any means. Such rapid price growth in these cities were never practically sustainable in the long term. Furthermore, a gradual cooling of the market is certainly more preferable than an abrupt housing bubble burst.

If you're an investor thinking of reaping immediate capital gains you'll want to sell your property when the market is at its very peak. According to forecasts, this could mean making the sale sometime this year or the next, if you're in Sydney or Melbourne.

Aiming to be in the market for the long haul? You might consider selling a house at the top of the curve, before buying again when prices have sunk.

"In a welcome change for those looking to buy a home, the heat is expected to come out of housing price rises over the next year," says Nick Proud, residential executive director of the Property Council of Australia. The stagnating of price growth will mean that getting your foot into the investment property market could get easier as homes become more affordable.

It'll also make it fair easier to find the right property to suit your investment objectives, with more housing selection available at your fingertips.

As always, be sure to seek out sound property investment advice before making any important decisions.

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