With the property markets surging around Australia, people are starting to ask is this more than just a property boom?
Are we about to enter a property bubble?
That’s what I’m going to discuss today with property researcher John Lindeman, and we’ll explain the difference between a boom in the bubble in what we believe is ahead for a property market so you have more clarity in making investment decisions
But before I have that chat with John, I will explain to you what it takes to be in the top 1% of wealthy Australians.
And what it takes to be in the top 1% wealthy people in the world.
And the figures I’m going to share with you may surprise you, in fact, if you’re listening to this, you’re likely to be amongst the top 1% of wealthy people in the world.
But I’m then going to share with you what you can do to work your way up the ranks.
And I will also have my regular mindset message for you at the end of the show.
Today, I’d like to have a bit of a chat about what it takes to be in the top 1% of wealthy people.
We know that true wealth is more than how much money you have or how many properties you own.
But you don’t have to look far to see the references to the top 1% of money earners and how disproportionate the distribution is in Australia and around the world.
The coronavirus also helped expose the deep divide between the rich and the poor.
But you may be surprised to find that the 1% doesn’t just include the superrich.
It may include you or someone you know. How rich do you think you need to be to make it into the 1% club?
It’s very likely if you’re listening to this podcast you’re already in the one percent.
According to last year’s Global Wealth Report, an individual's net worth of Australian one million two hundred ninety-five thousand dollars, a combined income of investments and personal assets, will make you amongst the world’s richest people. In other words, you need about 1.3 million to be in the world’s 1%.
As it turns out, there are discrepancies even among the 1%.
But when you look at the Bureau of Statistics, the average Australian has a net worth of just over a million dollars, and the Australian top 20% have a net worth of 3.2 million dollars.
So, a net worth of just 147,000 Australian dollars puts you in the top 10%. To be in the top 1%, you only need 1.3 million And Australian wealth is heavily skewed to property ownership.
Just owning their own home can make many Australians more money than their day-to-day work.
That’s why I discuss how to become successful in property. I want you to be in that 1%.
But what’s the solution to wealth inequality?
Focus less on taking action that could inhibit the top earners and more on what’s stopping others from being successful and what’s holding back the bottom 50%.
We are in a new property cycle, but rather than starting off slowly as they have in previous cycles, almost every property market around Australia is exhibiting strong capital growth.
This time around is very different from other cycles I’ve experienced where capital growth starts slowly and different segments of the market in different states behave differently.
Currently almost every market, in capital cities and regional Australia at the high-end price segments of the market and it’s the first homeowner level are moving upwards in price.
The one segment which is languishing is the CBD high-rise apartment.
Some commentators are claiming that our property markets are heading for a boom – I’d say they’re a bit late to call you at that – we are in boom conditions.
But others are warning that we could soon be in a price bubble that is about to bust.
So, what’s the difference between property booms and price bubbles, which are we in, and what’s ahead.
That’s the question I would like to ask leading property researcher John Lindemann of Property Power Partners – John is one of the popular regular guests on this podcast and a regular blogger on property update and Your Investment Property Magazine
So, let’s start with some basics – what’s the difference between and property boom and bubble?
Bubbles invariably bust and when they do, housing prices end up much lower than where they started.
Property booms, on the other hand eventually run out of steam with an occasional small price correction followed by a prolonged period of little to no growth.
While bubbles do not happen in the general Australian property markets which are underpinned by a large proportion of owner-occupiers, in the past we have seen property bubbles in certain speculative sectors of the property market such as mining towns or off the plan poor quality high-rise apartment towers in our capital city CBDs.
The issue is that they both look the same at the start.
It’s the type of buyers causing the growth.
Buying demand from investors grows when prices rise and the more that they increase, the more that investors want to buy properties.
Owner-occupier booms take place despite price growth and the more that prices rise, the more that demand slows down and then stops as prices become unaffordable.
Only investor-led booms can become bubbles.
Investor-led booms can become bubbles because investors don’t buy properties to live in, as owner-occupiers do.
Profit is their only consideration, and fear of losing their only concern.
This means that when price growth slows down or stops, investors start to put their properties on the market and try to sell.
When the number of properties for sale exceeds buyer demand, prices start to fall.
Panic starts to set in as more and more investors try to sell and because no one wants to buy, the bubble busts.
Owner-occupier booms merely slow down and when they end prices don’t crash, because the purchased properties are now people’s homes.
When buyer demand comes to an end, there’s no motivation to sell.
Only those homeowners who really need to move for personal, family or business reasons will do so.
Property booms can occur anytime and anywhere that the demand for housing outpaces the supply, but only investor led booms can turn into bubbles.
There’s a simple benchmark that tells us the type of boom taking place right now, and therefore what is likely to occur when the boom has ended.
The benchmark is called tenure, a technical term that refers to the conditions by which homes are held or occupied.
Just over one-quarter of homes in Australia are rented from private investors, so if the percentage of homes being bought by investors is lower than this, then owner-occupiers are driving buyer demand, but if the percentage climbs higher, then we are heading for an investor-led boom and a possible bubble that could burst.
Investors' buying have been lower than the 26% benchmark since 2019, and also the percentage of investors buying homes is declining.
Investor interest in residential property has waned in recent years because rental demand is falling and the yield from rent is too low.
Investor interest has turned instead to high-yielding investments such as shares, commodities, and even commercial property.
Owner-occupiers are not deterred by low rental yields, because they buy properties to live in, not to rent out.
The current mix of low-interest rates, easy finance, reduced repayment buffers plus government incentives and waivers is causing the current surge in owner-occupier demand and when the new affordability ceilings are reached, growth will slow down and then end, but it won’t bust like a bubble.
This is a period with many Australians that are upgrading their accommodation.
- Tenants who are unhappy with their accommodation are upgrading to better tenancies.
- Other tenants who’ve got a bit of money behind them and can take advantage of the government grants and incentives are upgrading and becoming first homebuyers.
- Established homebuyers can see property prices surging and many are looking to upgrade their homes to bigger or better accommodation in better locations.
- Other homeowners are upgrading to lifestyle locations and
- Some baby boomers are upgrading their lifestyle by downgrading their homes to larger apartments or townhouses in desirable neighbourhoods.
While there’s no doubt some people are moving to regional locations close to the CBD, you just have to go to the open for inspection in Sydney, Melbourne, Brisbane, or any capital city for that matter or attend any auction and you’ll see that the bulk of the buyers still want to live in the big city.
Why not join us at Wealth Retreat 2021 – click here to find out more
John Lindeman – Lindeman Reports
“Even though our system has lots of faults, it has actually created more prosperity, even for the lowest one percent, than most of the world can comprehend.” – Michael Yardney
“It’s the investors that create the swings.” – Michael Yardney
“The more you invest in yourself, the more opportunities you create.” – Michael Yardney
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