ACT Investors & Homeowners Put On Notice

With the upcoming Federal budget just around the corner, ACT property owners should be shaking in their shoes.

Why? Because noises coming from the Federal Government indicate cost savings in the budget which means public sector redundancies and job losses of a scale not seen for some time.

Job losses are a major precursor to a downwards shift in house prices, and in a captive or closed labour market such as Canberra where there are so many public jobs, those who unfortunately lose their jobs and are not absorbed by re-hiring (which is unlikely given all public sector jobs will be under pressure due to cost cutting) may be forced to move to other labour markets where there is more opportunity.

An exodus of people will bring with it an increase in the supply of both rentals (as they move out) and also properties for sale (as people sell up). Economics 101 dictates when you have more supply than demand, price falls as sellers compete by lowering their prices and rents to attract buyers and tenants.

It is unlikely that there will be a ‘rush for the door’ and a sudden price drop. Instead, it is more reasonable to expect a pause while the market catches it breath and reassess, and then downwards pressure on price and rentals if and as the job losses unfold.

With this in mind, I am downgrading my expectation of the ACT property market for the next 12 months from neutral to underperforming.

While I recommend holding off until the budget details are announced, I would be preparing now for the likely recommendation for property investors to:

1. Review their portfolios and consider releasing underperforming properties now while their are still buyers willing to pay today’s price
   
   
2. Secure expired tenancies on new leases
   
   
3. Hold off buying as better deals are likely in the months ahead if there are more sellers than buyers as expected.

It should also be said that the Canberra market will rebound in the future, usually with a change of government more favourable to expanding the public sector.

In the meantime though, it is likely to be a bumpy ride of investors that choose, or are forced, to hang in.

By Steve McKnight

Steve McKnight, the founder of PropertyInvesting.com, is a respected property investing authority as well as Australia's #1 best-selling business author.