Understand the risks to our property markets

As a property investor you need to ask yourself 3 questions:

1.    Which way are the property markets heading?

2.    Which way am I heading?

3.    Are we both heading in the same direction?

Everyone knows that the Australian property markets have changed and confusion is rife.

So I wouldn’t blame you for asking:

•    “Why do property analysts get it so wrong if they have access to all the research data?” Or…

•    “Why did a property boom with 20% plus growth catch many of us by surprise after the GFC? And why did falling property values catch many by surprise this year?”

There are lots of reasons, but one that I learned about many years ago is that every so often financial markets get hit with an X factor – an unforeseen circumstance that sweeps aside the careful predictions of market analysis.

For example the X factor for 2007 year was the US sub prime mortgage crisis and for 2008 was clearly the Global Financial Crisis and we are still feeling the effects of that now, aren’t we?

Then last year there were 4 interest rate rises and the financial turmoil overseas. Earlier this year we had floods and cyclones.

What was the X factor this year?

This year the X Factor this year has been Australian’s turn around from a nation of spenders to a country of savers. Rather than spending more than we earn (as we used to) we’re now saving over 10% of every dollar we earn. This is unprecedented – we’ve not done this before – not even after the GFC!

In turn this has slowed down our economy and lowered inflationary and interest rate expectations, which is not necessarily a bad thing.

Black Swan events

In his fantastic book, The Black Swan, Nassim Taleb calls these X Factors black swan events and explains that these type of major, unpredictable events are both underappreciated by the general public in terms of their role in shaping finance, the economy, and consumer psychology, and disproportionate in the impact they have.

Over the last months I have being doing my research looking for possible X factors for the next few years and I’ll be sharing them at my upcoming “How to prosper in a flat or falling property market” seminars.

And while X Factor events are inherently unpredictable and typically occur very quickly, it’s nevertheless interesting to consider some developments that are taking place in the world around us.  They may not be black swans, but they are certainly a shade of gray…

Possible X Factor #1: A European sovereign default

With a number of European countries on the brink of default, one burning question is how the financial system in Europe will react if bondholders (many of them are big banks) are forced to take major losses on their bonds, which are really nothing but I.O.U.’s from countries like Greece, Italy, Ireland and Spain.

Remember…it’s all but assured that these countries won’t be able to honour all their debts.

This has not been lost on many European banks who have already drastically reduced their lending to other Eurozone banks, fearing another ‘Lehman’ type event like in 2008 when US investment bank Lehman Brothers went belly up, marking the start of the Global Financial Crisis.

At that time the refusal of banks to lend to one another led to a seizing-up of the financial markets that eventually led to the collapse of several major banks and bail-outs of many more.

So what are the implications for Australia?

While our banks have little direct exposure to Europe, and I expect the situation to be resolved over time, it obviously has the ability to impact the financial system globally if it’s not dealt with. While the funding position of Australian banks is far stronger now than it was back in 2008, drying up of interbank lending could once again cause restriction of lending in Australia.

Possible X Factor #2:  A hard landing in China

Many people who understand much more about economics than I do believe that China’s centrally planned and heavily manipulated economy will experience a major slowdown.  China continues to demonstrate an amazing propensity to undertake enormous infrastructure projects, but like all booms this will have it’s ups and downs.

And remember China has considerable exposure to American and other sovereign debt, some of which isn’t worth the paper it is written on.

Of course even if China slowed from its highflying 10% rate to only 5% (still a higher rate of growth than most of the Western world), this could have major repercussions for the global economy and Australia in particular.

At our upcoming round of “How to prosper in a flat or falling property market” seminars, I have invited Rolf Schaefer to expand on this and explain what he sees as the other likely X factor for the next few years.

Does that mean you have to change your investment strategy?

The truthful answer is – I don’t know, because I don’t know what your strategy is – but congratulations if you have one.

When you join us at the seminar I will outline my investment strategy and what I am doing with our property portfolio.

With all the mixed messages in the media (and many of them very negative) and the changed attitudes of many lenders, plus the stock markets suffering from a bad case of jitters, it is natural enough for everyone in the working world, as well as those who are retired, to be worried about the likelihood of ongoing economic difficulties.

But not everyone will be worried. Some investors will do very well out of the current economic situation.

That’s why Rolf Schaefer, Ken Raiss and I are conducting our “How to prosper in a flat or falling property market”  seminars.

Our aim is to help you make sense of the media hype currently surrounding the economy and help you understand how you can protect yourself as a property investor.

I have successfully invested through 5 property cycles and the others through 4 cycles. We each own a significant property portfolio. We are not theorists.

We’ve been through times like this before and we’ll help you discover what others simply don’t know about the real estate market today.

When you join us we plan to give you straight forward, no nonsense, practical steps and honest answers to improve your property performance this year and into the future.

We’ll use our expertise to help you uncover answers to:

  • What is the likely X factor for the next year or two which means you will need to carefully evaluate your investment strategy?
  • Where are we in the property cycle and what’s really ahead for our property markets now?
  • How to analyse the key factors that affect our property markets.
  • Understanding investment strategies that work in today’s economic climate and how to protect your existing portfolio in today’s market.
  • How some people will continue to profit and avoid the pain.
  • Is now a good time to start an investment portfolio?
  • How YOU can arm yourself with the right strategies to make the most of the property markets ahead!
  • The key differences between the rich and the average Australian. And it has nothing to do with money. This could be the most important thing you discover about yourself and why you are stuck where you are.
  • Up to date information on exactly how to build a balanced property portfolio that can provide you long term success in all property cycles. With case studies to show how others are doing it.

To reserve your place simply click here now and find out more about the seminars, our more than $300 worth of bonuses when you attend and my personal money back guarantee.

This is the only major round of seminars that Rolf, Ken and I plan to conduct until well into next year. And much of the content we will be explaining to you will be new, so even if you have heard us before, now is the time to get this updated information relevant to our current property markets.

At these seminars we will lay out in front of you where we see our property markets heading over the next few years and how to protect yourself in these changing markets. We will also explain what we are personally doing about it.

If you own an investment property or two or are in any way considering investing in property in the future then this event is a must.

We will be covering topics to suit both beginners and advanced investors and will be introducing new up to date property concepts.

To reserve your place or to find out more, simply click here now.

I’m looking forward to seeing you on the day.


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Michael Yardney


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 one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au

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