Over the last 12 months we have seen reports in the media relating to the bust of the property bubble: the Property Boom is over!
Recent reports have heralded “dark times ahead”, and warned that we are on the “brink of property prices dropping by up to 40%”.
While a lot has been written and spoken about with the current state of the Australian property market and associated trends, quite often the reports aren’t painting the whole picture.
For property investors, one of the questions I keep getting asked, in light of the property boom supposedly being over, is:
“Should I sell?” or “Should I get out while I can?”
Very simply, this is not a ‘yes’ or ‘no’ question. There are many factors which need to be considered before giving any advice however one thing is clear: The moment that a property is sold, one cannot make anymore income, or receive anymore tax benefits, and there will be no benefit from any future capital growth from the property.
Certainly, property investors can find themselves in a situation where a property has experienced negative growth for a period of time and it would appear as though the value of their property has dropped. But investors of any commodity should take the view that all assets can (and will) appreciate and depreciate when investing, and that although an asset may have had negative growth, the only time the investor will actually make a loss is at the very moment in which the asset is sold.
There is of course the likelihood that the property market in question will take a swing back in the other direction, as history shows that real estate will inflate over time.
There is a small caveat here though, as there have certainly been cases in Australia where a property price has dropped beyond the point of original purchase price. Take for example a property that was purchased in a once-burgeoning mining area, that has since seen a cessation of mining activity, followed by employees moving out of the area. It’s likely that this property will not bounce back to the initial purchase price in the foreseeable future, as the demand for housing in the area has dropped significantly.
NB: This is why we have the Equidel Property Analysis Matrix that assesses a property and the area in which it is located on a number of factors, and it’s also why we avoid investing in so-called Property Hotspots.
But back to the kerfuffle of this declining property boom!
One of the most important things to remember for all property investors is the fact that there are literally thousands of property markets across the country. It’s not just that capitals of Sydney, Melbourne, Brisbane, Adelaide, and so on – in fact those capital cities contain many, many markets within each of them.
Let’s have a look at how the Melbourne property market has performed over the last 12 months. According to CoreLogic, Melbourne has dropped by -3.4% in the last 12 months. This drop is taking into consideration all suburbs and all property types.
However reading through some reports from YourInvestmentPropertyMag.com.au, we find in fact that some suburbs in Melbourne are going against this trend and have continued to experience growth, and quite substantial growth in some cases. Take Werribee for example, which has experienced 17.65% growth from September 2017 through to August 2018. Nearby Tarneit has grown by 13.54%, and Cranbourne by 21.35% in the same period.
This is far from the negative growth that is continuously reported by the “property experts” that we see making headlines. Steve Keen, an associate professor of economics from the University of Western Sydney is a great example of one such expert who got it wrong. In 2008, at the height of the Global Financial Crisis, he predicated that the Australian property market would decline by 40%, which simply didn’t happen.
Another property boom over? Thankfully not.
So why are there suburbs still growing while the property market declines?
There are over 3,000 property markets in Australia, yet the news reporters tend to focus only on Sydney and Melbourne, without factoring in any of the others.
What’s more important to look at are the triggers and indicators for property growth within individual areas through sensible property research.
Using the Equidel Property Analysis Matrix we can be guided towards areas that have the potential to experience continual growth, by looking at indicators such as population growth, employment opportunities, educational institutions, and more. While there is significantly more to consider than just these 3 factors, this is a good place to start.
We also take into consideration the various types of dwelling, and what might be suitable suburb to suburb, and client to client.
So is the Australian property market actually in decline?
Well, reports indicate that we are seeing a decline in some key markets. But by surrounding yourself with the right advisers and relying on fact-based knowledge, property investors can continue to experience strong returns on investment, even in a declining market.