The talk around the BBQ and at dinner parties for the past 12mths has been, how much lower will prices fall. After everyone has had a guess, the next question on everyone’s lips is why? Some media analysts are predicting a further 10% drop in 2019, although many are also suggesting that that is ludicrous and that a figure of 3-5% would be more realistic. At Launch Properties we know we can’t control the RBA, we can’t control the Banks and we can’t control the media, so let’s look at what we can control.
Media attention to the downturn has without a doubt exacerbated the falling prices whilst various market forces such as a lack of supply and dwindling buyers have assisted the downward inertia. This week the Reserve Bank of Australia attributed weakening house prices to interest rate shifts, and our team at Launch Money have reported that the tightening of credit policies, the seemingly ridiculous valuations being obtained by the lenders and the lack of wages growth have contributed to smaller numbers of pre-approved buyers in the marketplace. Less buyers equals less demand equals lower prices being achieved.
Although home values have been falling for almost a year and a half, nationally dwelling values remain 18% higher than they were five years ago highlighting that many home owners remain in a strong equity position.
Many investors when faced with a correction or a downward trend will hear the phrase, ‘Time in the market, not timing the market’. Although a littleoverusedthese days, it still rings true when the market moves away from you. Experienced property investors understand and should hold firm to the understanding that investing in property has always been a long-term strategy.
Due to the negativity pushed by the click hungry media, we have never been subject to such relentless messaging predicting doom and gloom in the property market, however, Growth, Equity and Prosperity are all positive words, so looking forward, not backward is the only view a property investor should hold.
Let’s take a breath and remember a few things.
Short term property speculation is a fool’s game.
- Given the incoming and outgoing costs associated with trading property, an investor should always plan to be in the market for one (1) or more cycles.
7-12 yrs is a cycle length on average
- We call them property cycles because that’s exactly what they do
Purchase for growth
- Property should only be purchased for growth, not because you want a tax deduction.
Investors should ensure they build in protection mechanisms:
- Fixed term leasing contracts.
- Locked in interest rates
- Competitive management fees
Statistics are your best friend
- Investors should avoid the next ‘hot spot’. Instead relying on data and growth driver statistics.
Know your exit plan
- Investors should only purchase with an ‘exit strategy’ in mind. This is often overlooked when a ‘bargain’ comes along.
Growth drivers are risk mitigators
Growth drivers are risk mitigators when the market shifts and they include:
- Infrastructure both now and in the future
- Employment hubs and growth opportunities
- Transport options to the major economic zones
- Social and lifestyle attributes
- Population shifts and suburb growth rates
A portfolio should be constructed with diversity in both location and dwelling type.
Investors should focus on what they can control.
- Source better funding, lower interest rates and account structure
- Review your management fees and ensure you are receiving value
- Tax deductible renovations/upgrades will raise rental yields
Focus on the positives.
- The ATO and the tenant cover a major % of your costs
- If you own 1 investment property you’re in a group of only 8% of Australians
- If you own 3 or more investment properties, you are in an even smaller group of 0.45%
- You are activating your prosperity and planning for your family’s future
- Owning investments is an insurance policy against unforeseen circumstances in your personal life
- You are in control of when you sell, so sell at the peak!
It may be counterintuitive, but if you have access to lending and a reliable income, I recommend you consider purchasing now. Build your team of experts, in Accounting, Planning, Finance and Property and take advantage of the current position within the cycle.
Disclaimer: For all tax related property questions and to clarify all matters regarding your personal situation you should talk to our team of qualified accountants at CXC Financial Partners. The accounting team can be reached on 1300 925 081 or send an email to: firstname.lastname@example.org
About the Author:
Steve Purcell is located at our head office and is the licensee of Launch Properties. He holds a PSBA License, is a licensed Auctioneer and holds a Masters Degree in Business. Steve brings an extraordinary depth of hands on experience to the role including twenty years in commercial and residential construction, followed by ten years in residential Real Estate sales and property development. This unique blend enables Steve to advise his clients on selected developers, to ensure they are providing functional, quality assets with high quality finishes to mitigate potential sector risks to our clients. Become a client of Stevens and get access to RP Data suburb reports, market valuations and advocacy options.
Steve Purcell can be contacted on 1300 925 081 or by email on email@example.com
Disclaimer: The information, analysis, provocations, suggestions and opinions contained within this email are provided by FPS Property Pty Ltd (ACN: 169 144 361) t/as Launch Properties under Property, Stock and Business Agents Corporate Lic # 10022396. You should consider whether the information or advice contained in this email is appropriate to you having regard to these factors before acting on it. You should seek personalised advice from your financial adviser and your accountant before making any financial decision in relation to matters discussed in this email.