The boom and bust mentality of property cycles have evolved into a 'new normal'. It used to be a 'typical' property cycle was seven to eight years but our research shows that it has dropped to the 'new normal' level of three to four years.
Of course, consumer confidence is the key variable in all cycles, and that is always fueled by a merry-go-round of non-stop media. The constantly accelerating 24-hour media cycle and the endless opinions that fly across the internet always push the extreme edges – the positives in a rising market, the negatives in a falling market. And if the cycles are spinning faster then they are shorter.
The media-information blitz is not the only reason. The rapidly changing demographics of Australian cities is a big contribution to shorter property cycles. For instance, in the last 10 years we have seen the average household in Australia drop from 4.2 residents to 2.6. With an ageing population, people getting married and having children later and a higher divorce rate resulting in single parent households, families don't need so much space.
Boutique apartment and townhouse projects are becoming an attractive option not just for young couples or retirees but also for small families. Especially when they are close to the CBD and transport hubs.
Take Melbourne: as the population expands at over 100,000 a year and is projected to reach 7 million by 2049, there is going to be a much greater need for higher density living close to the CBD, or around work places and transport amenities.
I am of the firm belief that high-density living does not offer the same growth potential as the more boutique apartment and townhouse projects because there is an underlying demand from owner-occupiers for the more private projects. And owner-occupiers make up approximately 70 per cent of the market.
Certainly we are seeing medium-density living in locations with good transport options and close proximity to the CBD as the best performers. Testament to this are Nyko Property's recommended suburbs, which all had these characteristics and outperformed the Melbourne market by 63 per cent and the Australian market by 54 per cent in the five years from 2008-2013.
Historically, Australians have bought investment property based on emotion rather than logic – buying in the area they live in and grew up in or locations that traditionally have a certain prestige. This is understandable – they are buying where and what they know. But this is not always the best choice as it doesn't take in the bigger picture.
Recent state government plans for both Melbourne and Sydney – Plan Melbourne and Metropolitian Strategy for Sydney – have provided something of a template for the growth of their respective metropolitan areas.
In each case the state government has pinpointed suburbs, and even key areas within those suburbs, in which they anticipate growth whether it be in new dwellings or jobs.
Certainly we have found that Plan Melbourne has been an extremely helpful resource in identifying which locations are likely to see the highest spike in employment and population growth.
They have laid out where they anticipate growth and therefore where they are preparing to commit extra funds for improvement of infrastructure.
And in-depth knowledge of the local areas and the micro-economic factors affecting them are the key considerations for any investors wanting to select property in high growth locations.