Does property double every 7 years? – Pete Wargent

One of the greatest cliches in Aussie real estate: 

“Well located property doubles every 7-10 years”.

I don’t know where it came from, but it became one of the best known phrases in property circles (in this country, at least…I don’t believe it’s ever used elsewhere).

Of course, the phrase takes little account of the factors which caused the rapid growth in the first place, including the high rates of inflation prior to the introduction of the 2-3% target range in 1993.

With interest rates now already having hit generational lows, if property prices are to grow further in aggregate, they’ll need incomes to push them along.

Thing is, wages growth is now slowing too as we pass the peak of the mining construction boom :

Ultimately, property owners aren’t really sourcing  most of their value from the building – their house or flat. It’s the land’s scarcity where the value is predominantly stored, which is where some of the other great real estate cliches derived from:

“Location, location, location” – Harold Samuel.

“Buy the worst house on the best street”.

If you want to experience property price growth, you’ll need to own land which is in massive demand, which is why investors tend yo look for a well.-located house, or perhaps a unit in a boutique block
with a high land value content.

Leichardt wreck sells for $980,000

The press will have a field day with this, as they always do – a wreck in Leichardt just sold for $980,000 – taking “buying the worst house on the best street” to its ultimate conclusion.

The house at 80 Edith St, Leichhardt, sold over the weekend.

Even a fast-talking estate agent couldn’t describe this dump as a “renovator’s delight”. It was, of course, sold as residential land, since the building itself has long since been trashed.

The Leichhardt house attracted a lot of interest from builders and developers.

The property’s interiors have fallen apart.

It’s not all that surprising, though, if you know the area, since that is what 278 square metres of land close to the famous Norton Street will approximately set you back in Leichardt.[sam id=40 codes=’true’]

Interestingly, the property on Edith Street last sold for $130,000 in July 1994.

So, in fact, the property has doubled even more quickly than every 7 years, its growth compounding at more than 10.6% per annum.

Being located in an attractive suburb only 5km from the CBD in a city with spiralling population growth, the prime location land in the city continues to increase in value much faster than incomes.

However, it’s highly unlikely that you will see that kind of long term land value growth in the outer suburbs, as the land there has inherently less scarcity value.

This is exactly what has played out in London, despite Britain having punitive inheritance taxes for UK residents.

[post_ender]



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Pete Wargent

About

Pete Wargent is a Chartered Accountant, Chartered Secretary and has a Financial Planning Diploma. He’s achieved financial freedom at the age of 33 - as detailed in his book ‘Get a Financial Grip – A Simple Plan for Financial Freedom’. Pete now manages his investment portfolio, travels and works as a consultant in the finance industry from time to time. Visit his blog


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