Some say our property market is about to crash!
Property Investors should brace themselves and prepare to see plenty of property doomsday headlines over the months ahead. Extreme opinions are already being seen from analysts that range from bullish confidence in the strength of our national property market to a familiar range of regular property pessimists that have been talking about an imminent collapse to Australian property values for more than a decade, only to be proved wrong every time.
Regardless of these vastly differing opinions, it’s evident that the resilience of the Australian property market will undoubtedly be tested over the coming months as we navigate through the COVID-19 crisis. Over the years, I’ve often been asked if Australian homes are too expensive and if there was a growing risk of a massive price correction. I’ve been a property investor for over 30 years, and regardless of when I’m asked this question, it’s always tough to answer without an extensive explanation.
Headlines Rarely Tell the Real Story
Informed property investors understand that there are hundreds of property markets within Australia. Each market has different strengths and weaknesses, creating opportunities for investors to select the ideal postcode and property type to fit their personal situation and the goals they want to achieve. Unfortunately, most headlines feature extreme situations, often the most extreme negative or positive example at that time, then depict that example as what the national property market is experiencing.
For example, the Sydney property market, with a median house price of $1.14m (Dec 2019) helps justify the ‘Australian housing is unaffordable’ debate, while most other capital cities have median house prices sitting around just half the Sydney median house value. And within the Sydney market, you can drive 30 minutes and be in an entirely different property market. One suburb can be displaying a rising volume of vacant properties, sending alarm bells throughout the nation that Sydney properties sit empty, and landlords can’t secure tenants. In contrast, other suburbs remain undersupplied with similar properties. And when an oversupplied suburb forces some desperate sales, even if the property was purchased ‘off the plan’ and tens of thousands above the valuation price, it provides an opportunity for a ‘property values crash’ headline.
Forecasts Divide Analysts More Than Ever Before
Not since the GFC have we seen such diverse forecasts around the immediate future of Australia’s property market. Doom and Gloom analysts have never been more vocal as they clamour for attention in our mainstream media, desperately trying to add a claim to the fact any fall in property prices was ‘as they expected’. All within their forecasts set out prior to COVID-19. Of course, any rational person has trouble connecting the dots, instead of understanding that our current circumstances are without precedence and could never have been forecast with any meaningful accuracy.
On the other hand, we have leading industry analysts delivering forecasts as recently as March that adjusts earlier bullish predictions on many markets across Australia but still believes we are well-positioned to see above-average growth in 2020. These optimistic forecasts have left the most ‘pro-property’ investors scratching their heads, wondering how there can’t be a more negative impact on property prices than these forecasts suggest.
For example, here’s one forecast published in mid-Feb 2020:
Investing is Always a Bumpy Ride
Any investor that expects to hold an investment in any investment class and not have ‘bumpy’ periods is simply not being realistic. Our national property markets have faced many challenges since I started investing in the late 1980s, and I expect our markets will be challenged again over the months ahead. We recently witnessed both the Melbourne and Sydney property markets experienced one of the most dynamic corrections in recorded history, prompting the doom and gloom crew to race forward and make claims to forecasting a ‘property bubble burst,’ then disappear just as quickly as these markets transitioned into breathtaking growth markets instead.
In my experience, I’ve discovered that every market encounters bumps in the road. Each enjoying strong periods of growth, and many also experiencing flat or even disappointing performance periods as well. What I’ve noticed is that it’s the worst period that reveals the investors that have well-planned investment strategies. Those that have done little research or not taken time to developed a smart investment strategy that matches well with their personal situation are hardest hit. Poor cash flow management is put under increasing stress. A lack of understanding around exposure to oversupplied risks and poorly selected property types can leave investors more exposed than a well-planned investor who may have invested in the same postcode.
You Can Avoid High-Risk Investing
If you want to enjoy all the benefits of property investing, plus feel well prepared for any bumps you might experience, I strongly suggest you position your strategy to embrace a long term approach (10- 15 years). Done well, you will find yourself cash-flow positive from day one, and with a growing property portfolio filled with the most highly desired rental properties within suburbs with almost no risk of oversupply.
The days are fading fast where investors were careless enough to just ‘buy and hope’, astute investors expect to minimise the risk, maximise the cash flow and use proven checklists to help them unemotionally select the best investment postcodes and then narrow down their research to identify the highest performing properties.
NOTE: If you would like more details on the risks and opportunities I’m noticing within the property market nationally I’ve attached a recording of my latest COVID-19 Property Investor Update