Property News, Insights & Education

    The Hidden Market Segment Set for Massive Growth in Real Estate

    What if you had advanced knowledge of a certain market segment which is set to out-perform the rest of the market by a considerable margin. 

    You’d want to target this for your next investment, right?

     

    Well, as you know the real estate market isn’t just ‘one’ segment. 

     

    It’s broken up into different segments by state, housing type (apartments, houses, commercial), regional versus city and so on. 

     

    And it’s also broken up into different affordability levels. 

     

    Take a look at this chart. 

     

    It shows the growth rate over the last 12 months of 3 different markets. 

     

    One is the lower quartile (lowest 25% of the market by price), the upper quartile (the highest 25% of the market by price) and the middle 50%.

    dwelling-change-graph

     

    All three markets are still going up, but if you look carefully you’ll see the growth rate of the expensive houses has dropped. That’s the green line. 

     

    From May to July 2023, the upper quartile market was growing at 4.5%, however it has pulled back to 2.5% in the October 2023 quarter.

     

    This is no surprise because of the affordability challenges around Australia. The impact of the rising cost of living coupled with interest rate rises have seen the more expensive houses fall out of reach. 

     

    And many buyers have set their eyes on more affordable options instead. 

     

    It’s the same with the middle section of the market, represented by the purple line. It hasn’t experienced the same highs as the upper end, instead staying fairly steady at around 3% as well. 

     

    But the blue line which represents affordable housing is growing faster and faster. And while it didn’t experience the wild peak of the other markets, it has continued a strong, steady increase every single quarter.

     

    It has risen to 3.8% from August to October 2023 and continues its upward trajectory.

     

    And as an investor this is information you can make money from. 

     

    Demand for affordable housing continues to increase because of the cost of living pressures and higher interest rates. And it’s almost certain to continue as house prices continue to rise across the country, putting more expensive options out of reach. 

     

    On the other hand, entry level houses will continue to be in-demand as other options put increasing pressure on people’s budgets. 

     

    They also make excellent investments for 5 important reasons.

     

    1. Capital growth is higher than for more expensive houses
    2. Rental yield is typically higher than more expensive houses
    3. It’s enjoying strong, steady and predictable growth rather than the higher fluctuations you get with expensive housing
    4. You can get in with a lower deposit
    5. And they’re easier to finance so they make a great starting point

    And this is why we believe the affordable market is one which investors should be watching closely. 

     

    Research indicates that inflation will continue above the RBA’s target of 2% to 3%. And the increasing cost of living, along with the potential for further rate rises (or at least rates continuing at their current level) along with sluggish wage growth will continue to see the affordable segment of the market grow strongly. 

     

    As an investor, this information is a valuable insight for your next move.