We are indeed fortunate to live in Australia. Despite watching on while other nations slide into a never-ending spiral of debt, all the while dealing with street riots and countrywide strikes, our biggest concerns seem to be concentrated on comparatively quibbling matters such as the ‘boat people’ debate or whether we’ll have an early election.
BY CATHERINE CASHMORE
This isn’t to say we’re sailing along without a worry in the world because quite obviously there are sectors of our population feeling the pinch, however relatively speaking, we’re doing okay.
The Reserve Bank of Australia released its Financial Stability Review this past week, which largely reaffirmed a positive outlook for Australia. Perhaps the most reassuring news to come from the review is that our cautionary approach to spending and borrowing has encouraged households to take stock of their financial situation, ensuring we’re well prepared for any future ‘mishaps’.
The report specified that over half of Australia’s mortgage borrowers are making ‘substantial excess principal repayments’ on their loans, as well as increasing household saving. This savvy approach to financial management is important, because quite clearly the path ahead is going to be unpredictable and rocky. The last thing we need is rash spending and extra inflationary pressure, particularly in the housing sector.
However sometimes it seems as if we’re living in the world of Harry Potter ‘dementors’ who are sucking the very optimism out of the air, keeping us on a cliff’s edge waiting for someone to shout “fooled ya!” and strip the sunny illusion away. The number of ‘experts’ who fill the news headlines each week with predictions of a 40 per cent house market crash is disturbing because our housing market is founded on a very stable platform, principally driven by an increasing population and supported by a healthy banking system.
It could be argued that the doomsday effect of media headlines is relatively harmless, however when it comes to investment, running sensationalist stories can have far-reaching effects, because aside from supply and demand, the greatest influence on our market is perception. Whether we recognise the folly of a debate or not, we can’t help but be influenced – hear a message enough times and your subconscious starts to believe it.
If you’re wise however, and take a more rational outlook, there’s a lot to be learnt from the current doldrums. Flat markets can teach us a valuable lesson because they test the ‘real’ strength of demand without being unduly distorted by bullish speculation often apparent during a boom. If you understand what performs well in a flat market, you’re better placed to take advantage of the current conditions, which are, by and large, extremely favourable for investors.
Essentially a property is only worth what a buyer will pay and reassuringly for the wise buyers and vendors, the sales results coming in from the homes displaying the right attributes assure that even in a turbulent environment our metropolitan market has the potential for growth.
Each week I attend six to eight auctions, most of which are for properties located in areas with the potential for good long-term growth and the right attributes to attract healthy interest. Providing vendor expectation is at a reasonable level, the property will attract competitive buyer activity and consequently achieve a good price. Importantly, it’s the vendors who purchased and negotiated well initially who are outperforming the current flat conditions. Therefore the key to successful investment is at the buying end of the process – get this part right and the selling side will largely take care of itself.
I wish it were easy to quickly quantify the difference between a good and bad investment.
Statements such as ‘A, B and C’ or ‘investment grade’ properties are thrown around among various commentators as if there’s a secret list in circulation. However there’s no ‘one size fits all’ when it comes to property investment. Each individual needs to be assessed based on their financial needs and long-term objectives. Whether we’re renters or owners real estate forms an essential part of our everyday lives, but this doesn’t mean we have the necessary experience to make the right choice when it comes to long-term investment, so seek out help from experts if you need to.
Tell us about your experience. Is the current negativity in the media having an impact on you? Or are you confident the market will still perform well?
Catherine Cashmore is a senior property adviser and buyer advocate for JPP Buyer Advocates – the largest dedicated buyer advocacy in Melbourne. With extensive experience in all matters regarding real estate, JPP successfully purchases and negotiates over $100m worth of property each year for clients. http://www.jpp.com.au
The current negativity in the media is not being fabricated out of thin air. Property prices ARE actually falling, so let’s not pretend that the media are somehow to blame for the pesimism and negativity in the property market – they are simply reporting on what is actually occuring.
Yes, they media exaggerate to some extent (as they always do), but this also occurs when the market is rising – you can’t have it both ways.
Just remember this: If house prices didn’t keep falling, the media wouldn’t have anything negative to report on. Property investors seem to want to blame anything and anyone except themselves. Sounds like a case of too many nervous people getting frustrated with the outcome of their ‘astute investment’.
Comment by Pino Tassone — October 1, 2011 @ 4:27 pm
Heard a funny joke during the week.
Q: How do you make $50k doing nothing?
A: Don’t buy a house in Perth.
But in all seriousness, The WA market is accelerating to the downside at a sickening pace. Perth house prices fell 2% in August alone. That’s 24% on an annual basis!
Comment by Jerome — October 1, 2011 @ 6:01 pm
Jerome, I think your comment is very wrong. The Perth housing market over the last 2 years has overall lost about 4-4.5% max. There are many suburbs in Perth that are achieving great growth, for eg Lathlain’s median house price has increased 13.1% this year. Whilst at the moment the Perth market is not doing that well it’s just plain wrong to suggest a 24%! complete collapse. If you read the latest October addition of API magazine on page 96 you will read that Perth “Has another boom just around the corner”. I’m only 15 years of age and I wouldn’t even come up with such an incorrect statement as what you’ve said.
Comment by Lachlan — October 3, 2011 @ 6:15 pm
Lachlan,
Nothing I said was incorrect. Have a look at this link – just shocking news for Perth property investors.
http://www.perthnow.com.au/business/perth-home-values-plummet-in-august/story-e6frg2ru-1226154145647
“Dwelling values in Perth fell 2 per cent in the month of August alone”. That is an annualised fall of 24% – just another kick in the guts for poor property investors who continue to lose in this harsh game of making money.
Unfortunately for Perth property investors, it doesn’t matter how many times they read ‘Rich dad Poor Dad’, it doesn’t matter how many slick ‘Get Rich’ seminars they attend, it doesn’t matter how much they pray at night – this won’t make house prices rise. This is truely becoming a sickening scenario for many many people.
Comment by Jerome — October 4, 2011 @ 2:56 pm
Whichever index you follow – aside from some areas in Australia (and there are always poor performers) – movements in the market have been minimal – we’re not seeing free falling prices, nor are we likely to do so.
It’s not cherry picking to point out the fundamentals that are holding our market in good stead. Whilst we have a supply/demand imbalance, increasing GDP, labour shortages, a strong mining sector, low unemployment and an economy which is faring better than most other developing countries, we suffer the inflationary consequences. There may be a good proportion of our population who are financially feeling the strain – and this has certainly been evident in sectors of the housing market – however equally so are a large proportion of our population reaping the rewards of investment in a booming economy.
It’s just as possible to lose money through unwise investment in the real estate market as it is with any other financial acquisition. Property is a long-term investment. If you’re purchasing now with the intention of selling in one, two or three years’ time, you’d be better investing your money elsewhere. However, our population is rising and the housing stock in areas where people both want and need to live (surrounding the major cities) is not increasing to meet the need. It’s logical to reason that demand alone will force the price of well-located residential real estate upwards over the long term.
It is however important to point out that just as we have a ‘patchwork’ economy, so too is our real estate market fragmented. Some areas are likely to see further falls, therefore it’s important to do the research at the buying end of the property transaction to avoid suffering at the selling end!
Comment by Catherine Cashmore — October 4, 2011 @ 4:21 pm
Jerome (comment #4),
That’s an outrageous call to suggest that Perth’s August fall of 2% “annualises at 24%”… that would only be true if house prices continued to fall at 2% every month, which is an extremely unlikely scenario.
According to this article – http://www.perthnow.com.au/business/house-prices-to-keep-rising-in-wa-nab/story-e6frg2ru-1226149368853
“Modest house price growth is expected to resume in NSW (0.1 per cent), SA/NT (0.3 per cent) and WA (1.5 per cent)” (According to the National Australia Bank Property Index.)
The article continues:
“National house prices are expected to recover in two years. WA is expected to significantly out-perform the other states and the national average, with prices rising by 3.4 per cent, while Victoria is the only state expected to record negative price growth (-2.1 per cent),” NAB said.
“Over the next two years, nationwide rents are expected to increase by 4 per cent, down from 4.4 per cent in June, led by NSW (6 per cent forecast rental growth) and WA (5.3 per cent).”
If you’re buying property now to hold for the long term, it doesn’t really matter if the price bottoms right now or if it falls by 5% or 10% before it starts rising again. You’ll win in the end anyway. Serious property investors don’t play games trying to pick the absolute bottom of the market… they buy any time they find a good deal.
I have both shares and investment properties. My shares are down by about 25% in a year – a bloodbath. They can lose 2% in a day, so it’s hard to get worried about house prices falling by that amount in a month. My properties are holding their value much better than my shares – I wish, in hindsight, I’d put all my money into property.
Comment by Nick B — October 4, 2011 @ 5:50 pm
Um If a 2% fall in just one month isn’t free falling, then what is!? As we all know, when house prices are going up and equity grows it is easier to buy more houses. On the flip side, as prices contract, equity falls and it puts pressure on investors to sell a property. As investors watch their millionare mentality come back down to reality they eventually realize that they now owe a million dollars on, if they are lucky, a million dollars!
Comment by Steve — October 5, 2011 @ 2:00 am
Catherine Cashmore…what “booming economy” are you talking about? If you keep your ear to the ground and listen to the anecdotal evidence from business owners big and small, you would soon discover that your optimistic outlook is unfounded… as opposed to listening to people like Wayne Swan on the news telling everyone how much our economy is booming.
The point of your article was about the media reporting the falling property market. Would you prefer that the media just kept ‘talking up’ the market and ignored the truth of the matter, just to selfishly protect the equity in your investment properties?
If the economy is in good shape as you say it is Catherine, then you have don’t have anything to worry about, and nor would any of your readers – and you probably wouldn’t even be concerning yourself with writing blogs about the negative influences of mass media.
Comment by Lozza — October 5, 2011 @ 10:56 am
I can only repeat what I said above
“It’s just as possible to lose money through unwise investment in the real estate market as it is with any other financial acquisition. Property is a long-term investment. If you’re purchasing now with the intention of selling in one, two or three years’ time, you’d be better investing your money elsewhere. However, our population is rising and the housing stock in areas where people both want and need to live (surrounding the major cities) is not increasing to meet the need. It’s logical to reason that demand alone will force the price of well-located residential real estate upwards over the long term.”
I fully understand there are areas of our economy struggling, and this has certainly been evident to a degree in the housing sector. However – coming from the UK, I also have a good understanding of the situation in Europe and how fortunate we are in comparison – something that should not be over looked.
There are strong fundamental reasons banks ‘happily’ lend on residential property in Australia. Our population is growing and all the best seats in our major capitals have been taken. The housing market is soft, but it is certainly not collapsing – as some suggest.
Comment by Catherine Cashmore — October 5, 2011 @ 4:19 pm