The honest truth about where property prices are headed

The honest truth about where property prices are headed

It’s common knowledge that the value of property grows overtime.

Property values don’t grow consistently or uniformly, but overall, the property lulls are temporary and the value of well located “investment grade” property generally increase in the long term.

So what should investors do in the current market if they wish to grow their wealth in the safest possible way?

Let’s look back at property prices to help you look forward.

As property is a long term investment and value growth compounds over time, it’s fair to say that the sooner you start investing in property, the better you’ll end up financially.

“That’s not fair,” I can hear new investors say.

“Despite the fact that property values stalled this year due to the Coronavirus induced restrictions and the recession we were forced into, value of some properties have fallen, prices are still so high, I’ll never get my foot on the ladder — let alone be able to build a property portfolio that allows me to retire.”

Now I can understand your frustration.

And in fact, to compound it somewhat, I’ll share with you this titbit of information one of my mentors shared with me many years ago…

The best time to get into real estate was 20 years ago.

However I would add — the second best time is today.

But that’s not particularly useful information, is it?

Who wouldn’t like to buy their parent’s house for the price they paid for it years ago?

Until we master the scientific breakthrough of time travel, it’s not possible to go back in time and buy property while it’s still “cheap”.

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But if that were possible, we could snag some absolute bargains.

If we take a look back at what real estate prices were like a few decades ago, the facts and figures are eye-wateringly appealing.

I started investing in the early 1970’s.

In 1973, the median house price in Sydney was just $27,400.

Renting would cost you an average $26 per week, and according to the Australian Bureau of Statistics (ABS), the average weekly wage was $111.80.

Buying a house at this time in in Brisbane cost $17,500 and in Melbourne it would set you back $19,800.

The first property I bought in Melbourne cost me $18,000. I went halves with my parents and we got $12 a week in rent and we were excited!

And if you were to purchase the average house in Canberra back then, it would cost you around $26,850, whereas a house in Hobart would’ve seamed a steal at the low median  of $15,200.

As for Perth and Adelaide, the housing market was affordable with a median of $26,850 and $16,250, respectively.

Compare that with the pricing of houses these days, and it’s a vastly different story.

According to the latest housing data from CoreLogic, median house values at the end of October 2020 were:

Oliver Shane Economic Australia

  • Sydney — $860,955
  • Melbourne — $666,240
  • Canberra — $656,739
  • Brisbane — $510,353
  • Perth — $456,267
  • Adelaide — $455,425
  • Hobart — $498,0736
  • Darwin — $398,910

The first thing we can deduce?

In the space of 47 years, all capital cities have recorded massive price growth.

Some have performed better than others, clearly.

But the fact remains that anyone who bought property in 1973 and still owns it now, has profited very handsomely from their investment. Property Prices2

The second thing we can deduce?

Time in the market, not timing the market, is a surefire strategy for success when you’re building wealth for your future.

There are a number of factors that influence property prices, but in particular our population growth, the increasing wealth of our nation and falling interest rates have driven up real estate values.

But clearly things have changed recently...

  • Population growth is slowing because immigration is restricted due to the closing of our international borders
  • Wages growth and inflation will be low for some time to come
  • Interest rates have fallen to historic lows and can’t fall much further.

So can property values still keep growing?

That’s a good question, considering there are still many  economic headwinds that will affect us and there will be a few challenges in the first quarter of 2021 as a number of small businesses close down and unemployment rates remain high.

But there will be also be a combination of growth drivers that should lead to a period of strong property price growth in the second half of 2021 and into 2022 with a confluence of the following:-

  • Federal Government spending, initiatives and infrastructure projects
  • State Government spending and infrastructure initiatives including stamp duty savings
  • Historically low interest rates making borrowing as cheap as it has ever been and therefore holding investments or taking out a home loan very affordable
  • The security that interest rates will remain low for a number of years will encourage people to borrow
  • Easing of credit approval criteria could allow many people to borrow considerably more than they could before.
  • A return of international demand for Australian property
  • A return of immigration and students to Australia is also possible.

Thinking strategically, this means that there will be a window of opportunity between now and the second half of 2021 for savvy investors to really amplify their wealth position.

OpportunityNo one is going to ring a bell when the market bottoms, but in certain segments of Australia’s capital city property markets we are already passed the bottom and property values are slowly but steadily increasing.

However, the average homeowner or investor won’t hop back into the market until there is more certainty.

When all is said and done, however, the irrefutable truth of the matter is this: if you follow a proven investment strategy, do the right research, choose an investment grade property, in the long-term outlook will be favourable.

This is true regardless of how uncertain the current environment is over the short-term and no matter how high property prices are in the current market.

So, rather than fretting about “where property prices are heading’”over the next year or two, focus on the bigger picture.

If you buy well, buy smart, and have a strategy in place, your prospects for wealth creation are strong.

After all, if Sydney property prices increased from around $27,000 in 1973 to $860,000 in 2020 — can you imagine where they will be a few decades from now?

Now could be the best countercyclical opportunity in decades to get into the property market.

We’re at the beginning of a new property cycle.

Sure the value of some properties may slip a bit more in some sectors of the market like the new apartments and houses in outer suburbs, but the downside is minimal and the long term upside for well located capital city properties is solid.

As the news gets better for property and the media reports rising auction clearance rates, rising house prices and increasing consumer confidence, a whole group of new buyers will enter the property market, buoyed by a strengthening economy, growing employment and renewed confidence in the direction Australia is heading.

Sell BuyThis will serve to increase competition for property which will potentially drive up prices and most importantly, absorb quality stock, making it harder for you to secure a solid investment.

This is likely to happen for two main reasons:

1. Confidence. By early next year, the economic picture will be clearer, the recession will have “officially” turned the corner and overall consumer confidence will begin to return as we claw our way back from the financially devastating pandemic.

2. Competition. Finance will be more freely available as a result of the changes due to come into play in March 2021, and those buyers who were previously restricted from borrowing (due to them not meeting the banks’ criteria, and/or temporarily losing or dropping their income during the pandemic) will be back in the market.

We’re in for a 2-tier property market

Now don’t get me wrong. Not all property markets will rebound strongly next year.

Properties located in the inner and middle ring suburbs, particularly in gentrifying locations, will outperform cheaper properties in the outer suburbs.

The reason being, Covid19 has adversely affected low income earners to a greater extent than middle and high income earners who are likely to recover their income back to pre-pandemic levels more quickly, while many have not been hit at all.

High-rise apartment towers in our CBD’s which were already suffering from the adverse publicity of structural problems prior to Covid19, will now become the slums of the future as they are shunned by home owners and investors. Neighbourhood Suburb

And like after every downturn, there will be a flight to quality properties and an increased emphasis on liveability.

As their priorities change, some buyers will be willing to pay a little more for properties with “pandemic appeal” and a little more space and security, but it won’t be just the property itself that will need to meet these newly evolved needs – a “liveable” location will play a big part too.

To many, liveability will mean a combination of:

  1. Proximity – to things like parks, shops, amenities and good schools
  2. Mobility – access to good public transport (even though this may be less important moving forward) or a good road system
  3. Access to jobs

The bottom line is that for those with a secure job and who have their finances under control, now could be the best opportunity in a decade to set themselves up for the opportunities that will present themselves as our property market head into a perfect storm with a confluence of growth drives in 2021-22.


NOW READ: What type of property will be popular post Coronavirus?


It should come as no surprise that getting a good team around you will be an important investment and not an expense and should allow you to build a property portfolio that will go a long way to replacing their income in the future.

At the same time, you must learn that property investing is not a get rich quick scheme and to achieve your future financial goals you will have to slowly build a substantial asset base and not chase short-term cash flow like many beginning investors do.

Here are a few other final tips so you’ll know exactly how to invest:

  1. Formulate a plan: understand your end goals – what you want to achieve – and then make investment decisions accordingly.  Property 2
  2. Be cautious: You’ll find everyone is happy to give you advice. Rather than listening to well-meaning friends, it’s important to only listen to people who have achieved the financial independence you’re looking for and who’ve maintained it through a number of property cycles.
  3. Understand the difference: between a salesperson and an advisor. Many sales people are cloaked as advisors and while they suggest they’re representing you, in fact, they are representing the seller or a property developer. Only take advice from someone who is independent and unbiased rather than someone who is trying to sell you something.
  4. Be prepared to pay for advice: I’ve found that good advice is never expensive. In fact, it’s much cheaper than learning from your property investment mistakes.
  5. Not everything that glitters is gold: often when you start out it can be tempting to see opportunities everywhere. The problem is you don’t yet have the perspective to decide what is a good investment and what is not.

Property doesn’t discriminate; it doesn’t care who owns it.

The residential property market is worth well over six trillion dollars today and over the next decade, it will increase in value by billions and billions of dollars.

If you get it right, you can have your share.

Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on

Metropole

If you’re wondering what’s ahead for property you are not alone.

You can trust the team at Metropole to provide you with direction, guidance and results.

In “interesting” times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that’s what you exactly what you get from the multi award winning team at Metropole.

If you’re looking at buying your next home or investment property here’s 4 ways we can help you:

  1. Strategic property advice. – Allow us to build a Strategic Property Plan for you and your family.  Planning is bringing the future into the present so you can do something about it now!  This will give you direction, results and more certainty. Click here to learn more
  2. Buyer’s agency – As Australia’s most trusted buyers’ agents we’ve been involved in over $3.5 Billion worth of transactions creating wealth for our clients and we can do the same for you. Our on the ground teams in Melbourne, Sydney and Brisbane bring you years of experience and perspective – that’s something money just can’t buy. We’ll help you find your next home or an investment grade property.  Click here to learn how we can help you.
  3. Wealth Advisory – We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.
  4. Property Management – Our stress free property management services help you maximise your property returns. Click here to find out why our clients enjoy a vacancy rate considerably below the market average, our tenants stay an average of 3 years and our properties lease 10 days faster than the market average.

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