All About Property

The first question to ask is; “Has this happened before”?

Of course it has.

The second question is; “Should I be worried?”

The answer is ‘No.’

Property prices in Melbourne have unquestionably soared over the past few years as it has done in the past and property prices will probably continue to fall over the next 18 months, as it has done before.

I am not sure what all the fuss is about as Melbourne property prices have a cycle that they go through. In fact this market slowdown is well overdue.

Let me prove my point.

In the mid 70’s I was selling a house and land in the region of $15,000. Yes, you are seeing right. $15,000 for a house and land in the City of Knox.

Fast forward to today. The median price in the City of Knox is around $700,000.

Do the maths. How many times has it doubled in 40 years?

The median price of a home has doubled over 5 times in around 40 years.

Morgan Stanley also believes that the housing market will continue to weaken. They have reached this conclusion by using their Australian housing model (MSAHM), which clearly shows the housing market weakening.  The basis of their findings takes into account a number of factors including the delicate balance of supply and demand, mortgage serviceability (this is affected by interest rates and employment), credit supply, house price expectations and rental market conditions.

While Morgan Stanley and CBA believe prices will continue to fall, they don’t believe the property market will crash. After several years of continuous growth, the market is typically going through a consolidation phase. Their expectation is a fall of about 10% in Sydney and a little less in Melbourne.

This correction in house prices should not come as a surprise. Prices cannot rise indefinitely without a breather. What we are experiencing is the start of the mid-cycle slowdown in the 18-year real estate cycle.

If you are thinking of selling and buying in the current market, it really doesn’t matter what the market is doing because it’s all relative. You may sell for less but you will also be buying for less.

If you are currently selling and you are not realistic about your price, you should consider taking your property off the market and hold off selling for a few years. However, my advice is that if the price you get in today’s market allows you to make the move to a better lifestyle, don’t put your life on hold for a price that the market is not willing to pay you. That price you want obviously doesn’t exist; otherwise, your property would have sold.

The Melbourne market is solid as a rock and predictable.

If you are considering selling and want to be sure of a good result, make sure that you email Bertram@propertyadvocacymelbourne.com.au and I will be happy to send you a complimentary copy of my eBook.

“How to get the best result, when selling your property”

A quick and easy read that will ensure the best result.

I read an article written by Peter Switzer, which made so much sense and I have included a small section of it here.

“I’m sorry that I have to write about property prices again but I do feel compelled to give the other side to the story that’s being pedalled by the media and some economists. Today, following the 22nd time the Reserve Bank has met and left interest rates on hold, there are references to a house price slump and the possibility that the next move on rates will be down, not up!

It’s become fare that the media loves to gobble up because they think it sells newspapers and attracts eyes to their ‘important’ stories.

And they might prove to be important stories but right now they’re nothing more than speculative stories. Two big watch issues make it possible for this fear and doom tale to be told that the house price fall might be scarier than you think and that the RBA will be forced to cut rates.”

I have said this before and I will say it again; a slowdown in property prices has a cycle that repeats. In my 45 years in property I have seen it happen four times already.

So, why all the fuss? Why are people worried about this, when it has happened so many times before and all you have to do is look at the median price of a house today and check what it was 40 years ago in Melbourne and you will see the gain quite clearly.

In 1970 it was $12,800 and in 2016 it was $773,000.

You’ll find that in each 10-year period there seems to be 3-4 years when the market is flat, 3-4 years of low capital growth, and a few years of strong price growth during the boom stage of the cycle.

When you look at the property prices that prevailed years ago, and look at property prices today, it’s clear that property investment is a long-term play. You need to be patient as, over the long term, values in our major capital cities have doubled every 7 to 10 years.

With property prices stabilising, you might think it’s a bad time to enter the property market. What stops people from buying property is fear. The fear of paying too much, the fear of making the wrong decision or the fear that the market may crash. But even if prices are falling right now, that’s no reason to be fearful. It is important to understand that when it comes to property you are not in the game of picking the top or the bottom of the market, no one can do that.

Despite the falling prices, property is a long-term investment and over time prices will rise

Cheers, Bertram

Many people do not consider investing in property, because they think that it is too risky, too hard, too complicated and many other reasons. The fact is this; it is easy, it is not complicated and what’s more, anyone can do it. All you need is the right information, a good strategy and a good mentor.

So here are a few helpful suggestions for you:

1. Why are you buying?

This might sound like a stupid question, but you need to think this through, because it has a major bearing on what you buy, where you buy, what name you buy it in and a few other factors.

I’ve found that while most property investors hope to one day replace their personal exertion income with cash from their investment properties, most don’t have a strategy to achieve their goal.

2. What to buy?

First thing to do is to work out what type of property you will need for your situation. This will depend on many factors; your reason, your price-point, your purpose and length of time etc.

Do you buy new or old. House or unit or townhouse or an apartment. Commercial property or retail property or Industrial property? This does depend on many factors.

If you are not sure, please give me a call or email me and we can analyse this very quickly and I can assist you with getting the right one.

3. Where to buy?

Do not look for ‘hot spots.’ If you do you are dicing with danger for the simple reason that today’s hotspot might be tomorrows cold spot. Do your research around where you live and get to know the area. There is nothing better than being able to drive past your investment property on a regular basis, just to see how it is doing.

If it is too expensive around where you live, then look for the areas that the government has designated as Regional Centres where money for new infrastructure is being spent and it is well serviced by transport, shops and schools.

I am not a great fan of buying in regional centres. History has shown that the capital growth of city based properties does exceed regional properties and although regional might give you a better rental return, when you add in the capital gain, city based properties win every time. And if you have to sell for any reason, they sell quicker in Melbourne.

As far as deciding where to buy; this is easy. ABS figures show that Melbourne recorded the biggest population growth rate of any capital city in Australia last financial year, with its population increasing by 2.1 per cent. Why would you not invest in Melbourne, when it is going to be the largest city in the country.

4. Do not buy to negatively gear. I hear this so often that people want to buy an investment property, because they want a tax deduction. This is not a reason; it is just a very useful by-product of investing in a property and not the aim. Unless you are on a big wage it is not a reason.

That said, property does allow you many tax advantages, especially depreciation, but you do not buy it for that reason. You buy it to suit your plan for creating wealth and you choose the property accordingly.

5. What entity do you buy the property in? Your name? A Family Trust? A company? This might seem a difficult question, but once you know what the end game is, it is easy as picking up the phone and asking a good accountant and lawyer.

Or I can point you in the right direction, as I have a good team assisting me.

6. So just how many properties does it take to enable you to quit your day job and live comfortably?

This is a very interesting question and it depends vey much on what you want as an income when you quit working.

The sad fact is most people think they can retire on the pension and what they find is that they have to drop their standard of living quite considerably to manage. Is this what you want for yourself? I should think not!

From my research it appears that a minimum of around $80,000 per annum is what is required to live comfortably as long as you do have no debts to pay.

So do the maths. Let’s assume an interest rate of 3.5% paid on your savings. To achieve $80k per annum you will need $2,300,000 saved. That is after you have paid off your house. And then you have to keep pace with inflation. How does that sound? Does it make you stop and think? I hope so.

The fact is that property returns at least 3.5% per annum, so if you had three debt free properties to the value of around $1M each you would achieve that and what is great is that they keep pace with inflation. Just think about this; had you bought ten years ago you would have only paid $500,000 for each of them.

So I ask you this; would you like to start NOW! As they say; ‘better late than never.’