They often say that the idea of buying and selling is an art.
The thing is, it’s also equally as much of a science.
The world finds itself in equilibrium between the sales masters that could coerce Elon Musk into purchasing a Tesla, and the financial experts that can read the markets like the back of their hands.
This careful, yet complex field is what we know as economics. It sounds scary, but it’s as simple as that – the art (and science) behind buying and selling.
And the thing is, its related to anything from your weekly grocery shopping, to your property investment strategy.
The 2 most basic economic indicators within any market – property, share or farmers, are SUPPLY and DEMAND (S&D for short).
But just because they’re the most basic, doesn’t mean they’re not important. S&D are great friends of ours, because despite what other people, the news, or life tells us, they always lead us in the right direction. For us, understanding S&D allows us to make informed decisions for your long term financial benefit.
So, let’s delve into exactly what S&D are, why they’re important and what exactly they mean for you as an Aussie property investor in 2024.
What exactly are Supply and Demand?
S&D go hand in hand, like 2 peas in a (hopefully) economically stable pod – and we can’t talk about one without mentioning the other.
These two factors influence every move in the markets, on a global scale, all the way down to you purchasing your investment property, or buying your weekly iceberg lettuce.
The supply for something, at its core, is how much the market is receiving of that product (or service). A market can be one of three things – undersupplied, oversupplied and adequately supplied. These are all determined by the demand for that thing, whatever it is. At the end of the day, the powers that be strive to keep the market adequately supplied, so that prices stay manageable and the market continues to remain strong. It doesn’t always work perfectly, but in the property world this is often done through fiscal strategy put into action by the Reserve Bank of Australia – AKA shifting interest rates in order to help change people’s spending habits, but we’ll get into that more later.
So, we’ve established the idea of supply, but demand is simply how much of that thing people want, or how many people want it. The interesting thing here is that S&D are completely dependent variables, meaning that a change in one will almost certainly change the other.
Take something completely random, like snow boots. The demand for snow boots in sunny Queensland would be ridiculously low – it’s just not cold enough. This means the demand would also be low, and in order to ensure adequate supply, producers and distributors will not be stocking them in their stores. BUT, what happens if the weather suddenly becomes alpine? The demand will go up, which will make it necessary for supply to go up – simple!
SO, that shows how S&D is relevant to any random market, but what about the property industry? Let’s go through the specifics, so you can really grasp what’s going on behind the scenes.
As a property investor, why should you care?
Well, demand is way UP and supply is down –
Let me explain…
Typically, supply and demand have a way of falling into equilibrium – just like in that snow boot example mentioned earlier. The thing is, Australia’s property market finds itself in a unique situation – especially as we move through 2024. Here’s why:
There is an unprecedented undersupply of property in the market. This is something that’s evident across both the buying landscape AND the rental market.
The number of approvals for new builds was at a 10 year low of 164,000.
Alongside this, we are seeing incredibly low rental vacancy percentages. According to PropTrack, the national rate is 1.07% – a LONG way below the target range of 2-3%.
So, if new builds are at a low, surely that means there’s enough property to supply the market, and it’s not too much of an issue…
Unfortunately, that couldn’t be further than the truth
According to the Australian Bureau of Statistics, Australia’s population grew by 624,000 people in the 2022-2023 Financial Year – a number over 150,00 higher than the previous growth record.
Alongside this, the population growth projection for this FY is predicted to be over 500,000 – number more than 100,000 above the previous record.
Alongside this, the relaxing of interest rates and the implementation of Stage 3 Tax cuts, alongside growing consumer confidence provides the perfect cauldron of demand.
And when demand is high, but supply is low – basic economics tells us that prices are bound to increase.
So, what this should tell you as a prospective property investor, is that the market is placed in a position of GROWTH in 2024.
It’s not a time to wait around, to see what the market will do. With supply at a low, and demand growing from a number of avenues, the property market is set to see some significant growth.
Wondering how to get started? Let’s chat about setting your property investment plan into action.
Give us a call on 1300 776 735, we’d love to hear from you!
