Last weekend Pam and I were invited to a wedding and were seated next to a lovely couple we hadn’t met before.
As we chatted throughout the night, I discovered he was a partner in a major accounting firm and a serious property investor for over 12 years who had grown a very significant property portfolio.
What then shocked me was that he shared with me that he was selling up his entire portfolio, spurred on by all the doom and gloom predictions he was reading. As we got more into the conversation I discovered he was concerned that all the problems overseas were yet to impact on Australia. He quoted many sources including a popular book by Harry Dent that suggests some economies are going to implode.
In my opinion he is listening to terrible advice he should ignore!
Of course I explained my bullish long term predictions for the Australian property markets and he understandably asked, “Why should we believe the current round of predictions that suggest the property markets will remain buoyant, rather than those that say the bubble will burst?”
I guess I could have replied, “How did all those who predicted the collapse of property and that we should sell up our properties get it so wrong?”
But instead I went on to explain that making short-term and long-term predictions about the property market can be reasonably easy, but it’s a different story with what happens in the middle.
You see…it’s usually easy to understand what’s going to happen to property over the next 6 to 12 months. For example, over the next year property values will be driven up further by the same fundamentals that have created the current mini boom.
These include; a strongly rising population, scarcity of well located properties in the inner suburbs of our capital cities, changing demographics with smaller households (meaning we need more dwellings for the same number of people), low vacancy rates, rising building costs, relatively low interest rates, high consumer confidence and fear that people will miss out on the current property boom.
Likewise, it’s easy to predict what will happen in 10 years time. That is, property prices are likely to double as they have in the past.
But with so many unknowns ahead, so many macro economic factors affecting our general economy and so many micro economic factors affecting our local property markets, it would be a brave person who would try to accurately predict what’s going to happen to the markets in the middle.
We do know that over the next 10 years there will be a few years when property values will boom, as well as a number of years when property prices will stagnate or even fall. The problem is we don’t accurately know when these times will come.
We also know that over the next 10 years there will be periods when interest rates will rise above the averages and slow our property markets down and there will be times when low interest rates will encourage home buyers and investors to hop into the market.
The bottom line is that property is a long-term play and you have to formulate a property and finance strategy to get you from where you are now, to where you want to be in 10 years time. Hopefully that will be owning a multi million dollar property portfolio that gives you financial freedom.
I guess it’s like a game of chess. All the pieces are on the board, but only those who can see three or four steps ahead will win the game.
So why did so many so called “experts” get the predictions wrong last year?
That’s because many of the people quoted in the press are economists and analysts coming from a share market perspective and they were analysing property as they would shares. They give a broad-brush opinion of what will happen to the property market, but it doesn’t work that way.
Some of them fail to understand that there are many property markets around Australia, with each state being at its own stage of the property cycle and dependant upon its own microeconomic factors. And then there are markets within markets within each state property cycle.
These economists also tend to forget that the property market is dominated by home owners, who are not investors. People don’t sell their homes when the economic news is bad, but they will sell up their shares. That’s one of the reasons the property market is so much more stable than the share market.
So how does a property investor really know what’s going on?
To understand what’s happening in your local market you have to be in the game – you have to become an expert in your local market. I know the buyer’s agents at Metropole www.metropole.com.au attend hundreds of open for inspections and 15 to 20 every week. They can feel the pulse of the local property markets and know the types of property that are in strong demand and can feel the pressures that are forcing property values up.
As for the long term trends in property – just look back at history and find the areas that have always outperformed the general property markets. With all the research available on the Internet today that’s not hard.
Then don’t speculate. Instead buy the best property you can afford as part of a long term property investment strategy and make sure you have sufficient financial buffers in place to see you through the ups and downs that will surely occur between now and when your property will double in value – maybe eight to ten years down the track.
2010 is going to be a great year for property and I’ll keep you up to date with the changes happening in our property markets in future newsletters, 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 we have no properties to sell, but access to every property on the market. 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. Just click on this link to find out more and reserve your place.
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