The financial markets around the world are currently taking a beating and for the first time in a long time property prices are falling in many parts of Australia.
According to RP Data-Rismark’s Home Value Index the seasonally-adjusted, capital city median house price in Australia dropped by 0.2 per cent for August, with an overall decline of 1.2 per cent since the market peak in May.
Even though national house prices increased by 8 per cent during the 12 months to August, current signs clearly indicate a cooling market as we wrap up 2010 and many commentators are predicting that, at best, prices will remain flat for some time to come. Of course there are always the doomsayers who see home prices falling significantly.
So is it time to worry about our property markets?
I don’t think so. Sure we are moving on to the next phase of the property cycle, but this is normal after a period of high capital growth. All markets go through cycles and after a few years of close to 20% growth in some suburbs; the markets are simply getting back to their averages.
The RP Data figures for the last quarter show Hobart and Canberra were the top performing capitals, with median house prices increasing over the three months to August by 1.4 per cent and 1.2 per cent respectively, while Sydney was the only other city to experience a price rise, albeit a negligible 0.2 per cent.
Declines in median prices for the same period were seen in Melbourne, with a fall of 1.5 per cent and Brisbane where prices dropped by 2.6 per cent, while Perth took the biggest hit with a substantial decrease of 4.8 per cent over the last 3 months.
Overall the national median house price was recorded at $410,000 for August, down from $415,000 in July
So what is a property investor to do?
One of the biggest mistakes that many property investors make is they forget history.
When a market turns, they forget that the same thing happened years ago and the market will once again improve and start rising. As human beings, when things are good we think that they’ll be good forever, when things are bad we think they’ll be bad forever. The truth is that all property markets are cyclical – they grow, they plateau, they may even drop in value for a short time, then they grow again. It is just the nature of economics. Certain factors in an economy have to catch up with each other.
If you’re a long term property investor you should be excited about the opportunities our current markets present. Of course you can’t just go out and buy any property or pay any price, like some investors thought they could do in the past. In this very different financial era, to be a successful property investor you will need to develop new strategies or adapt your existing ones to meet the new factors posed by a cycling market.
I foresee generally flat property prices over the next few months – possibly well into next year. But I also see some great opportunities.
With an improving local economy, strongly rising population growth, rising rents and the ability to buy a bargain from some motivated vendors – the type of bargain that we couldn’t find in the last few years when there was strong competition from other investors – I know some investors will set themselves up for success in this current stage of the property cycle.
My personal strategy is to continue what I have been talking about and doing personally for years:
1. Buy the right type of property – one that has some element of scarcity, which will always make it appealing to owner occupiers (who push up the prices) as well as tenants.
2. Buy in an area that has always outperformed the market.
3. Buy at the right price –this should be below intrinsic value – the type of price that even if values do drop 5 or 10 % (and I don’t think they will in most areas) you will be covered.
4. Only buy a property to which you can add value – during this time of flat growth, manufacture some capital growth yourself through renovations or redevelopment.
What about falling property values?
The property markets across Australia have generally held up pretty well, but are obviously adjusting to the rising interest rates and general market nervousness.
Sure, the value of some properties has dropped. This has occurred particularly in the upper end of the market – but these were never investment grade properties. The same will happen in many holiday locations over the summer months – prices will fall as fewer buyers bid for the many properties on the market. And property values are falling in the lower end suburbs, new housing estates and regional Australia – all areas that will be more sensitive to rising interest rates. And prices will fall further in these areas.
But I see medium density middle priced properties – particularly inner and middle ring suburbs in Melbourne, Sydney and Brisbane – holding their values pretty well. People living in these areas are not as interest rate sensitive.
You know how they say statistics lie? Well currently the reported median price changes are not a good measure of what is really happening in the market.
Let me explain…
While the general property market has been pretty flat, there are still some suburbs that have had very strong capital growth, while at the same time many suburbs have had their median prices fall.
It’s like me putting one hand in a bucket of ice water and the other hand in a bucket of boiling water and saying “on average the temperature is fine!”
Some parts of our capital city property markets are hot and others are not.
We’re moving into the next phase of the property cycle – one of increased risk for many investors (because they won’t be carried by rising markets), yet one of great opportunity for those who know how to play the game.
So what am I doing now? I’m going to continue investing the same way I’ve always done.
I’m going to continue looking for opportunities, be financially responsible and take advantage of the buyers’ market.
What does the future hold for you? Will it be one of prosperity or one of dependence? That’s the most powerful question you can ask yourself. What are you doing today to protect your future?
If you want to grow your own significant property portfolio, you need to own properties that provide wealth-producing rates of returns. You should seriously consider learning how to grow your wealth the same way these sophisticated investors do and manufacture your capital growth through property renovations or property development.
If you join me at my annual “Real World” Real Estate Workshop in October you can discover proven systems and strategies for profitable property investment that will allow you to take advantage of the window of opportunity between now and when our property markets turn down.
Just to make things clear this is an advanced property workshop that I only conduct once each year and it’s Australia’s longest running 3 day property workshop where you learn the art of property development and property renovations from some of the most respected experts in Australia.
And your satisfaction is guaranteed by my personal money back guarantee!
When you come you will learn “Real World” answers to the real problems faced by investors in today’s changing property markets and “Real World” property renovation and development strategies.
So if you want to get started in property renovations or development please join us. No get rich quick or pie in the sky concepts from people who have only done this for a few years.
Between now and then I’ll keep you up to date with how to take advantage of the changes happening in our property markets in future updates, but it is probably appropriate to remind you that in changing times like we are experiencing, no one can help you quite like the independent property investment strategists at Metropole.
Remember the multi award winning team at Metropole have no properties to sell, so their advice is independent and unbiased. If you want to find out a bit more about what is happening in your local market and what our research suggests is in store for us, join us at a free property briefing in Melbourne, Sydney and Brisbane or with our associates in Perth. Just click on this link to find out more and reserve your place.
As so much is happening in property nowadays I’ll keep you updated almost every day with a short post in my blog – just click Michael’s blog in the top menu items on this page and subscribe to it – that’s a different subscription to my regular newsletter – it gives you my short daily updates.
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