Jan 29, 2018
With our property markets moving
to the next phase of the cycle, how do you create capital
growth?
Do you have to change your
strategy?
Today, we discuss
- Some of the myths of capital growth.
- The "5 P's"that actually cause capital growth.
- Some likely trends for property in 2018, and
- I talk about what is ahead with Dr. Andrew Wilson, Australia's
leading property economist from My Housing Market.
6 Myths About Capital Growth:
- Population growth leads to
capital growth.
That’s only partially
correct, but you need to find the right locations with the correct
demographics and people with higher disposable incomes so they can
afford to pay more for properties.
- Invest in any capital city
and experience strong capital growth.
Not
true – in each capital city there are multiple submarkets. You
can’t just buy in any property and expect it to
outperform.
- Buy land and it will
appreciate.
Not all land is equal. Target where
you will get above average capital growth. Inner and middle ring
suburbs of our capital cities are the places to invest. Find areas
that are gentrifying and locations where people want to live and
are therefore prepared to trade space for place.
- You can predict capital
growth.
There is no shortage of experts
predicting the next hot spot.
But most have been wrong much
more often than they have been correct - you must understand the
level of accuracy of their predictions.
- You are likely to get capital
growth if you buy negatively geared properties.
This is another myth as many negatively geared
properties have experienced no or minimal growth.
Negative gearings isn’t an investment strategy,
it is just the way the property is financed at a certain point of
time.
- New developments are good
news for an area.
Not necessarily. These may
lead to local population growth, but they often stifle the supply
and demand ratio. The demographic may have less disposable income
or be overstretched.
The 5 P’s of Capital Growth:
- People
- Purchasing power
- Position
- Property
- Places
Some property market trends likely to occur in
2018:
- Increased stock
levels, as more vendors
come to market and thousands of new apartments are completed
following the construction boom.
- A reduction in investor
demand – due to lower
consumer confidence and as owner occupiers struggle with
affordability.
- Flight to quality
- the buyers remaining in the
market will be pickier given improved supply
- Auction clearance rates will
fall back to the more
normal rate of around 60%.
- Price growth will
continue – albeit at a
slower pace, particularly in Sydney and Melbourne’s best
suburbs.
- There will be some minor
price corrections – a
healthy outcome following such a prolonged period of rapid
growth.
The Bottom Line: don’t let
yourself be distracted by the headlines. Yes, the boom is over but
the opportunity to make money in the slowing Sydney and Melbourne
markets will always be there if you keep a long-term view. There
will be some good opportunities in Brisbane in 2018.
Links and resources:
Quotes:
“After five years of an upward
trajectory, we are now seeing affordability constraints, tighter
lending criteria, and lack of consumer confidence. We have moved to
a new normal.” Michael Yardney
“There are two things you can do
about the new normal. Learn the new rules and understand how they
work and take advantage of the current available opportunities.”
Michael Yardney
“Real wealth from real estate is
achieved through long-term capital appreciation and the ability to
refinance and keep adding to your asset base.”
Michael Yardney
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