How to overcome the property scares of 2018
Thursday, January 25, 2018/
I predict that 2018 is going to be a boom year!
But before you start wondering what I’m on, let me explain… I believe this is going to be a boom year for fright!
The media is at it again and there is no shortage of scary headlines. Titles like “The Property Boom is Over”, “Property Values Will Crash” or “Housing is Unaffordable!”.
Of course, just about every year is a boom year for fright.
As far back as I can remember, there have always been scary stories in the media. Looking back over the years I have invested through many property slow downs, stock market crashes, periods of high interest rates and periods when people thought housing was unaffordable or would never go up in value again. Yet despite all this, the value of my properties keep doubling allowing me to refinance and buy even more properties.
Like I said, there’s always bad news in the media. I remember in the late 1980’s the cry was “don’t buy houses… they can’t go up in value any more. Your kids will never be able to afford them”. Then there were similar headlines in late 2003, predictions of our property markets collapsing in 2008 and when interest rates rose in 2010 the media predicted the end of the property boom once again.
Then there’s the regular parade of ‘gurus’ explaining how our property market is a significantly overvalued house of cards that is about to topple.
There always seemed to be scary headlines about a grim future which could have given me plenty of reasons not to invest in property. Before the growing concern around climate change, there was an over-population crisis with politicians, environmentalists and economists predicting massive food shortages, rioting in the streets and an impending collapse of society.
Of course, the media gets more mileage out of this type of story. They find it hard to get readers’ interest reporting on jobs creation, infrastructure spending, significant population growth, the greatest number of Australian investors on record and 26 years of continuous economic growth for Australia. This is boring.
This means that to be a successful property investor you need to step back and take a big picture view and refuse to be scared by the next boogey man jumping out from behind the bushes.
The fact is, this week somebody’s getting married, somebody’s looking forward to having a baby, somebody’s getting promoted, somebody’s getting transferred, somebody’s getting divorced.
And a lot of people are happening to get rich.
This year our population growth will offer continued support for our property markets, with UBS suggesting add short term arrivals such as overseas students will add to our permanent resident growth. Australia’s ‘people growth’ is striding ahead at a record high of 3.5% meaning over 850,000 more people are going to have to live somewhere. Those that can’t afford to buy will have to rent.
This means the-medium term fundamentals for our property markets are sound. And if you take a long term perspective, you’ll be able to spot and act on opportunities that arise this year as many potential home buyers and investors get scared by this boom year for fright.
I see 2018 as being a year of great opportunity for strategic property investors. A year of opportunities for those who are willing and able to see the big picture.
But remember — what you look for is what you see. If you look for bad news you’ll find it. On the other hand if you look for opportunities, you will find them.
Our economy is sound, employment is strong, our population is growing and rents are rising. The fundamentals of supply and demand will support our property markets over the next few years. Other than a few CBD locations, we’re just not building enough dwellings or the right dwellings for our changing demographics.
Over the last year decreasing affordability, the Australian Prudential Regulation Authority’s macro prudential controls and changing sentiment stalled the property boom and now we are now entering a buyers’ market. But the funny thing is buyers don’t buy in a buyers’ market — yet smart investors do! They recognise the current market presents them with a smorgasbord of opportunities and they step up and take advantage of them.
I’ve found that when there’s lot’s of bad news people believe times are going to be tough forever. This is similar to when things are good, people forget the bad times ever existed and think things are going to remain good forever.
Neither case is true! In fact, during booms people are most confident when they should probably be the least confident, as things can’t continue travelling at breakneck speed and above average rates of growth. Similarly, during the market slowdowns, things eventually turn around. Ironically, people have the least confidence when it’s more likely that things are going to improve…that is, when markets are near their lowest point.
2018 will be the right time to educate yourself and get set to take advantage of the opportunities this stage of the cycle presents. Yes, things have slowed, but this is a normal part of the ups and downs of the property cycle. The good news is this time round, the market slowdown has occurred in a low interest rate environment, so we won’t have a deep downturn with a significant drop in property prices that may have occurred if the Reserve Bank of Australia had to raise interest rates to slow down the market.
As always, while some people worry about the bad news and sit on the sidelines, astute investors will set themselves will set themselves up for the next stage of the property cycle by purchasing well located real estate.