Have I Missed the Boat?

  • Have I missed the boat?
  • Is there a property bubble?
  • Will prices continue to rise?

These are the biggest questions in property right now and there is certainly no shortage of media stories around these topics. As such, I’d like to offer my perspective on not only what’s happening now, but also what’s likely to happen over the next 12 months. As an ex-accountant I’ll be blunt and give you the hard unemotional facts.

1)     The media need to create stories. Every day there are stories of rising prices, property booms, sales well over reserve, un affordability, poor first home buyers, crashes, busts, property drops and rising interest rates – you can almost predict topic by topic what’s going to happen. The media aren’t to blame, they need to sell newspapers and TV programs – it’s what they do and the more dramatic the headline, the more they sell. However it’s important to be aware of this so you don’t read too much into the hype.

2)     The experts don’t try and pick the market. The experts either buy when they’ve got the cash to buy or when they’ve got the cash to hold on for the long term. There are four main property research houses in Australia: Residex, RP Data, Australian Property Monitors and SQM Research. John Edwards, the head of Residex, said firmly on my Sky News show September 12th that he would never time the market, and if he sees a good property at the right price he would buy. You can see the 4 minute interview here: John Edwards interview

3)     Louis Christopher from SQM Research recently came out with his predictions for capital growth in 2015, which are as follows: 

City Rates unchanged 0.25% Rate Rise
     
Adelaide +4% to +7% +3% to +6%
Brisbane +5% to +8% +5% to +7%
Canberra -2% to +3% -1% to 3%
Darwin -3% to +1% -2% to +1%
Hobart +3% to +6% +3% to +6%
Melbourne +5% to +9% +4% to +7%
Perth +1% to +4% +1% to +4%
Sydney +8% to +12% +4% to +7%
     
Capital City Av. +5% to +9% +3% to +6%

Based on this information, Sydney is predicted to be the top performer and to grow on average by 8-12 per cent. If we receive a rate rise in mid-late 2015 then this growth may perhaps be reduced to 4-7 per cent, which equates to around $30-90k on a $750k property.

Research houses like SQM are independent and don’t have a vested interest in pumping up the market. As Louis says in the following interview, his predictions for 2014 that he made in 2013 have been very accurate. See the interview here: Louis Christopher interview

Alternatively, you can buy the full report here: SQM Research Report

4)     Property is a long term game. When you consider purchases you made 10-20 years ago, or even last year, the price you paid is insignificant to what it’s worth now. Whilst buying the right property at the right price will significantly increase your profit and reduce your risk, it’s the action takers who go out and actually buy property that make the real money. I purchased half of my properties during the Global Financial Crisis when the media were saying the same thing as they are now. Properties that I bought at $600k have since risen to well over $900k and continue to climb. Will they ever be worth less than their purchase price? I highly doubt it.

5)     Reduce your risk of things going wrong.

a)     Buy in blue chip areas where there is limited supply of land and an increasing demand from high income, young professionals with good jobs and wealthy parents behind them.

b)     Pay a conservative bank valuation price, as the property could easily be worth 5-10 per cent more if bought at auction.

c)     Hold a cash buffer so you’re not forced to sell in the short term.

I don’t recall ever seeing a time when a Bondi two bedroom unit is cheaper tomorrow than it is today. Properties in those areas tend to slow down, not go down. No one knows for sure what the future holds – you don’t want to be one of those people who say in a few years’ time; “I should have bought back in 2014 when prices were less.”