How Australia's changing demographics are affecting the property market for investors

By Catherine Cashmore

Tuesday, 29 November 2011

The demographics of our cities are changing at a dramatic pace.  While most are distracted by the state of the euro and the possible consequences to the Australian economy, long-term property investors should have their sights set on the emerging trends affecting Australian real estate. While immigration has bought a wonderful diversity of culture to Australian shores, flavouring suburbs with international restaurants and much-loved cosmopolitan delights, the effects on property have been startling.

The biggest increases in population between the 2001 and 2006 censuses were from China (64,000) and India (52,000) – two countries with dense populations and lifestyles very different from that of the typical Aussie family.  As a proportion of our population, ratios of migrants born in Asian countries are on the rise, and it’s suggested that by 2025 they will be the majority.

To give you some idea of current living conditions in these two countries, India’s urban population is growing twice as fast as the rural population and China’s metropolitan areas have mushroomed.  Statistics forecast an expected 350 million people to move into China’s major cities by 2030 and there are reports China will need to build 50,000 new high-rise buildings in the over-populated towns to accommodate the surge.  To the incoming migrants landing on Australian shores, our capitals must seem luxuriously capacious and attractive in comparison.

There is no doubt population growth has had significant impacts on the changing topography of real estate in Australia.  During the 1950s the landscape was sculpted with large blocks land, smaller houses and huge back yards.  Australia held the international image of people who enjoyed an outdoor sporty lifestyle and Victoria was aptly labelled the “garden state”. Since then city borders have been forced outwards under the increasing influx.

Once labelled outer-suburban areas are now seen as middle- and inner-ring suburbs, attracting high property prices and strong demand. The trend for inner-city apartment living has increased and been strongly favoured by investors who lean towards low-maintenance set-and-forget acquisitions – investments that are easy to rent and fall under consistent demand from international students and young migrants.

Melbourne arguably heads the population race and Sydney isn’t far behind. Even though the ABS recently reported a slowdown in migration, Melbourne’s still on track to comfortably reach upwards of 6.5 million by 2030.  As a result, leading demographers have stated that Melbourne and Sydney will need to be “completely redesigned”.  To emphasise the point, take a look at some of the quotes below – they are taken from The Committee for Melbourne’s 2050 Melbourne Beyond 5 Million report

“At the local street level, high-frequency public transport will be threaded through the entire city.”

“The development industry has learnt that it is merely a waiting game ofwhen, not if, the UGB (urban growth boundary) line will be re-drawn”

“Density needs to be understood and nurtured, not feared, as it has the ability to assist in shaping and growing Melbourne into an even more liveable city.”

The report highlights the need to plan for the “inevitable” swelling of our borders; however it also takes into account the effects of cultural diversity – something that’s rarely highlighted in property seminars.  In short, when it comes time to sell the family home you purchase today, the buying market dominating the population could have completely different tastes and preferences from that of the typical Aussie family – so much so, it could affect the future potential of your investment.

Well-weathered property buyers understand that residential real estate with good owner-occupier appeal fuels demand and consequently holds the best prospect for positive long-term capital growth.  However, many make the mistake of purchasing what they’d consider attractive and don’t take into account future cultural changes – namely the Asian market.  For example, to the average Australian buyer, period properties hold an unqualified level of appeal and capital growth tends to outshine other more modern styles.  However, to many Asian buyers, period homes are often seen as old and dated and newer properties grab the upper hand.

Other trends also are also starting to play an important role in the cultural hubs of our cities.  For example, properties with the number ‘4’ in the address are considered unlucky and avoided, whereas the number ‘8’ in an address has the opposite effect and in predominantly Asian populated suburbs, houses listed with an ‘8’ will attract a higher price based on this alone.

As a buyer advocate I’m often asked to search for properties that fit a compatible feng shui floor plan with various rooms in different quadrants of the house – (not an easy task.)  Also, homes opposite a T intersection, close to a cemetery, or with a view from the front door straight through to the rear (something that attracts European and Australian buyers) are also frowned upon.  It’s worth taking these aspects into account, because stick around for a while and the trends are not only likely to grow in dominance but – depending on location – they may also start to affect the price of your best and most valuable asset.

With lack of experience, investors often get caught up purchasing property with a preconceived set formula; they forget to think about the area they’re purchasing into.  For example if you want to gain from prospective future demand, it’s no good purchasing – or indeed planning - a modern box-style townhouse in a location that predominantly attracts buyers who flock there for the pretty streets lined with Californian bungalows on expansive blocks of land.  Neither is it wise to target a small one-bedroom apartment in a popular school zone in an area that only predominantly holds value for families with school-age children.

Likewise, a simple look at Australia’s future demographics is giving us clues to what will affect property prices in the future – and it’s not as simple (as some would suggest) of  “house and land vs apartment”!  As individuals we can’t control future market movements, however with a bit of insightful forethought we can minimise the risks of our choices – especially when it comes to purchasing real estate.

Catherine Cashmore