The upside to downsizing

9th Aug 2016By: Charles Tarbey

An interesting dynamic between supply and demand currently exists in Australia, and the outlook for the spring market may be a little different to what is usually expected of the season.

With only a month left during winter, now would usually be the time properties are being prepared for listing and begin to filter into the market for a spring sale.

However, stock levels are lower than usual and according to CoreLogic data, the number of homes listed for auction across the combined capitals is around 20% lower compared to this time last year. In many suburbs, strong demand still exists for the little stock that is available.

I believe the disparities that exist in terms of supply and demand in markets across Australia may present a valuable opportunity for those who have been considering downsizing.

There are many reasons why downsizing may be on the minds of property owners. Some may find a large home is exceeding their needs, requiring too much effort to maintain. Others may find themselves empty-nesters as their children grow up and move on. Investment may also be a motivation, with downsizing freeing up some cash to purchase a new investment property or holiday home.

For those looking at selling up and buying in the same area, this could present a struggle if there is not much stock available. However, if you are considering selling to downsize and relocate to a new suburb, or even state, you may find yourself in a better position.

An upside to downsizing in light of current market conditions could be the potential to achieve a great price for your property if selling in an area where stock levels are low. This situation will favour vendors as potential purchasers must put forward their best offer to achieve success.

On the other hand, as you search for a new property in an area where more stock is on the market, you may be equipped with greater power to achieve the most desirable price for a property. The ability to negotiate will be much more effective where vendors are keen to make a sale, in a market where they face plenty of competition.

For example, vendors in the hot capital city markets of Sydney and Melbourne may find themselves in this position should they wish to downsize to a regional or coastal property, or make a move to warmer, sunnier locations in the north of Australia.

Apartments may be seen as an appealing option for some. This could be due to their smaller size, which can be easier to take care of, convenience and access to facilities, and gives the owners the ability to simply lock up and leave if they want to travel.

Over the next two years, the number of unit construction across Australia is reaching towards record highs. The Australian Bureau of Statistics (ABS) analysis of building activity for the March 2016 quarters shows that over this period, 29,987 units commenced construction nationally. CoreLogic data released at the end of July predicts that there will be around 92,000 new units constructed over the next 12 months.

In light of this construction influx, buyers should carefully consider unit purchases. It will be crucial to weigh up the prospective location and the level of supply in the area, as well as local amenities and any future changes or planned infrastructure. This will help to evaluate whether an apartment purchase may be both a good option for downsizing and a good investment. However, if you are planning to hold property for the long run – which is always Century 21’s preferred strategy – these considerations may be less important.

Finally, downsizing may free up some extra cash and in light of record low interest rates, now could be a great time to consider paying off your mortgage, refinancing your mortgage, or making extra payments to get ahead.

Whether you wish to downsize, or have any other property goals in mind, as always, I encourage those Australians wishing to transact property to carefully consider all their options and financial circumstances, and seek advice about the best way to achieve success in the real estate market.