With property markets across Australia remaining flat or seeing falls over the past few years, many investors are probably wondering what their investments will be worth in 2013. There’s a more important question they should be asking.
BY MICHAEL YARDNEY
Every Monday, most investors look at the auction clearance results and each month check on median property values. While it’s not as bad as watching your shares fluctuate in value on a minute-by-minute basis, this short-term focus is unhealthy for investors.
A better focus would be on what that property will be worth in 10 years’ time.
The scary thing for some is there are still commentators out there suggesting property values won’t rise for another decade. Then there are those overseas gurus who predict the world is about to go through an economic tsunami that’ll finally swamp Australian property, taking prices back to where they were a decade ago.
There’s nothing new about these property pessimists – they’ve always been around and they’ve always been wrong.
Look what’s happened over the past 10 years. The values of well located capital city dwellings have more than doubled over the past decade despite the introduction of the GST in 2001, the ‘dotcom’ crash, going to war in Iraq, a change of government, periods of both high and low interest and the world’s worst economic downturn since the 1930s.
Australia is well positioned for the future. While many parts of the world are in economic turmoil, our fundamentals suggest the next 10 years are going to be just as good, if not better for property, than the past decade was.
Our economy is the envy of most other developed nations, unemployment is low, our banking system is sound, our population is growing and we’re the wealthiest people in the world on average.
With this in mind, property values are once again likely to rise significantly over the next decade. But if history repeats itself, during that time we’ll have another property boom, a further slump and most likely another economic downturn.
To safely steer through the next decade to the point where property values will once again double, strategic investors need to stop worrying about the market noise and not be intimidated by the small stuff, like interest rate increases, tax issues and negative news in the media.
Instead, they’ll need to focus on the big picture. And that picture is bright. Research shows increased urban sprawl, gentrification and multi-occupancy housing will continue to be the big housing trends in the coming 10 years. The population of all capitals will increase significantly but Western Australia is expected to exhibit the strongest population growth, adding an additional one million people.
In terms of dwelling types, a report by IBISWorld suggests property price increases combined with family and lifestyle factors will drive a trend towards apartment and high-density living. More of us will be trading in quarter acre blocks for balconies in the future.
The increasing average age of marriage (now 29 for females, 32 for males) and the trend to wait longer to have children is another factor fuelling the shift towards apartment living – with young people opting to live in close proximity to work, entertainment, dining and public transport.
It becomes fascinating when you consider that Melbourne and Sydney may each require around 30,000 new apartments over the next 10 years. This is the equivalent of 150 high-rise buildings, each accommodating 200 apartments.
It’s likely we’ll have more decentralised development in the future with the emergence of medium to high rise residential buildings in the suburbs rather than just in the inner suburban areas. These will occur around public transport terminals, railway stations and possibly large shopping centres.
If you want to develop financial independence through real estate, it’ll be important to own the type of property that’ll be in continuous strong demand in the future. It’ll also be critical to find the type of dwelling that’ll be in demand by owner-occupiers, who are the ones that push up property values.
It’ll be interesting to look back in 10 years’ time and see how things have panned out. In the meantime, strategic investors will take a big picture view, buy more smart investments and see the value of their portfolio steadily increase.
Michael Yardney is the director of Metropole Property Investment Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He’s a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Investment Update blog.