The honest truth about where property prices are headed

It’s common knowledge that the value of property grows overtime.

Property values don’t grow consistently or uniformly, but overall, the property lulls are temporary and the value of well located “investment grade” property generally increase in the long term.

So what should investors do in the current market if they wish to grow their wealth in the safest possible way?

Let’s look back at property prices to help you look forward. Property Prices

As property is a long term investment and value growth compounds over time, it’s fair to say that the sooner you start investing in property, the better you’ll end up financially.

“That’s not fair,” I can hear new investors say.

“Despite the fact that the value of some properties have fallen, prices are still so high, I’ll never get my foot on the ladder — let alone be able to build a property portfolio that allows me to retire.”

Now I can understand your frustration.

And in fact, to compound it somewhat, I’ll share with you this titbit of information one of my mentors shared with me many years ago…

The best time to get into real estate was 20 years ago.

However I would add — the second best time is today.

But that’s not particularly useful information, is it?

Who wouldn’t like to buy their parent’s house for the price they paid for it years ago?

Until we master the scientific breakthrough of time travel, it’s not possible to go back in time and buy property while it’s still “cheap”.

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But if that were possible, we could snag some absolute bargains.

If we take a look back at what real estate prices were like a few decades ago, the facts and figures are eye-wateringly appealing.

I started investing in the early 1970’s.

In 1973, the median house price in Sydney was just $27,400.

Renting would cost you an average $26 per week, and according to the Australian Bureau of Statistics (ABS), the average weekly wage was $111.80.

Buying a house at this time in in Brisbane cost $17,500 and in Melbourne it would set you back $19,800.

The first property I bought in Melbourne cost me $18,000. I went halves with my parents and we got $12 a week in rent and we were excited!

And if you were to purchase the average house in Canberra back then, it would cost you around $26,850, whereas a house in Hobart would’ve seamed a steal at the low median  of $15,200.

As for Perth and Adelaide, the housing market was affordable with a median of $26,850 and $16,250, respectively.

Compare that with the pricing of houses these days, and it’s a vastly different story.

According to the latest data from CoreLogic, median house values at the end of June 2019 were:

Oliver Shane Economic Australia

  • Sydney — $866,524
  • Melbourne — $709,092
  • Canberra — $656,943
  • Brisbane — $533,133
  • Perth — $458,137
  • Adelaide — $465,266
  • Hobart — $484,716
  • Darwin — $461,033

The first thing we can deduce?

In the space of 46 years, all capital cities have recorded massive price growth.

Some have performed better than others, clearly.

But the fact remains that anyone who bought property in 1973 and still owns it now, has profited very handsomely from their investment. Property Prices2

The second thing we can deduce?

Time in the market, not timing the market, is a surefire strategy for success when you’re building wealth for your future.

There are a number of factors that influence property prices, but in particular our population growth and the increasing wealth of our nations have driven up values.

When all is said and done, however, the irrefutable truth of the matter is this: if you follow a proven investment strategy, do the right research, choose an investment grade property, in the long-term outlook will be favourable.

Property Time

This is true regardless of how  volatile value movement is over the short-term and no matter how high property prices are in the current market.

So, rather than fretting about “where property prices are heading’”over the next year or two, focus on the bigger picture.

If you buy well, buy smart, and have a strategy in place, your prospects for wealth creation are strong.

After all, if Sydney property prices increased from around $27,000 in 1973 to $866,000 in 2019 — can you imagine where they will be a few decades from now?

Now could be the best countercyclical opportunity in decades to get into the property market.

We’re at the tail end of this property slump.

Sure the value of some properties may slip a bit more, but the downside is minimal and the longterm upside for well located capital city properties is solid.

Factors that led to the change in the market momentum include:-what properties are investment grade

  • Increased confidence now that the Coalition has won the Federal Election
  • APRA easing bank’s assessment criteria for new loans – this should commence in the next month
  • Two interest rate cuts and the prospect of more to come
  • Banks passing on the home loans with some cutting rates even before the most recent RBA “official” cut in rates
  • Tax cuts are on the way – meaning more money in our pockets
  • The best housing affordability nationally since 1999
  • Positive messages in the media stoking consumer confidence.
  • First home buyers returning to the market encouraged by government incentives.

And this will only get better in the next few months as APRA’s changes haven’t really worked their way through the banking system yet, and many home owners and investors have not yet benefited from the lower mortgage rates and the tax cuts are yet to hit our hip pockets.

Now don’t expect a property boom any time soon, but think about it?

How often in your lifetime will you get a chance to buy Sydney property 15% or so cheaper than you could a few years earlier?

How often in your lifetime will you get a chance to buy Melbourne property 10% or so cheaper than you could a few years earlier?

A few times in your lifetime!

Some final words of advice (or warning) for investors

It should come as no surprise that getting a good team around you will be an important investment and not an expense and should allow you to build a property portfolio that will go a long way to replacing their income in the future.

At the same time, you must learn that property investing is not a get rich quick scheme and to achieve your future financial goals you will have to slowly build a substantial asset base and not chase short-term cash flow like many beginning investors do.

Here are a few other final tips so you’ll know exactly how to invest:

  1. Formulate a plan: understand your end goals – what you want to achieve – and then make investment decisions accordingly.
  2. Be cautious: You’ll find everyone is happy to give you advice. Rather than listening to well-meaning friends, it’s important to only listen to people who have achieved the financial independence you’re looking for and who’ve maintained it through a number of property cycles.
  3. Understand the difference: between a sales person and an advisor. Many sales people are cloaked as advisors and while they suggest they’re representing you, in fact, they are representing the seller or a property developer. Only take advice from someone who is independent and unbiased rather than someone who is trying to sell you something.
  4. Be prepared to pay for advice: I’ve found that good advice is never expensive. In fact, it’s much cheaper than learning from your property investment mistakes.
  5. Not everything that glitters is gold: often when you start out it can be tempting to see opportunities everywhere. The problem is you don’t yet have the perspective to decide what is a good investment and what is not.

Property doesn’t discriminate; it doesn’t care who owns it.

The residential property market is worth well over six trillion dollars today and over the next decade, it will increase in value by billions and billions of dollars.

If you get it right, you can have your share.

Take advantage of independent, unbiased investment advicewhat properties are investment grade

If you’re looking at buying your next home or investment property here’s 3 ways our team at Metropole can help you:

Sure our property markets are improving, but correct property selection is even more important than ever, as only selected sectors of the market are likely to outperform.

Why not get the independent team of property strategists and buyers’ agents at Metropole to help level the playing field for you?

We help our clients grow, protect and pass on their wealth through a range of services including:

  1. Strategic property advice. – Allow us to build a Strategic Property Plan for you and your family.  Planning is bringing the future into the present so you can do something about it now! Click here to learn more
  2. Buyer’s agency – As Australia’s most trusted buyers’ agents we’ve been involved in over $3Billion worth of transactions creating wealth for our clients and we can do the same for you. Our on the ground teams in Melbourne, Sydney and Brisbane bring you years of experience and perspective – that’s something money just can’t buy. We’ll help you find your next home or an investment grade property.  Click here to learn how we can help you.
  3. Wealth Advisory – We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.
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Michael Yardney

About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'The honest truth about where property prices are headed' have 2 comments

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    August 26, 2019 Ben Loveday

    What you say about long term growth is 100% true for the entire history of all Australian cities. However all our cities are in a young constantly expanding nation. As a nation gets older however and as it grows into its resource base, the tail winds of expansion start to slow up. In the last decade we have seen reduced resource prices send Perth’s property market into a tail spin, and the devastation in Adelaide’s northern suburbs by the retreat of GMH and BHP. Looking ahead, there are massive headwinds which could either support Australia’s future growth (if harnassed) or bring it to a standstill if ignored: the worldwide transition to renewables and electric vehicles, the imminent ascension of China to the number 1 economic powerhouse of the world, closely followed by India, and the rise of the services and consumerist economies of the world. Australia is a minnow in terms of GDP and population, with too much reliance on bulk primary resource extraction. To continue the growth described, Australia will have to deploy its most precious asset: it’s spirit of innovation.

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