With so many mixed messages this is a timely reminder about what really drives property and some strong evidence that there won’t be a better time than right now…
It’s the economy
It may sound simple but sometimes people forget that the economy drives markets – all of them. When someone is telling you how great or terrible a particular market is or isn’t, a good indicator is how is the rest of the economy doing. Then ask ‘what are the implications for property?’. Today the Reserve Bank is telling us we are already in a boom that may last decades. They don’t know how it (the effect on the overall economy) will look yet, but they recommend that it is deserving of a total rethink by the Government.
History shows that when there is a positive structural (permanent) change to the economy markets can take some time to react. This is particularly true for property. As a (simplistic) example, the freeing up of funds through deregulation in the late 70’s didn’t have its full effect until the late 80s. Similarly the increase in affordability through inflation targeting in the mid 90’s wasn’t fully absorbed until the early 2000s. So, how long until the current change is fully understood and felt?
Similar, not the same
Sometimes we forget that Australia is a Commonwealth of States and Territories, with each being significantly different to the others in size, demographics, geography and most importantly, economically. Therefore if the economies are different and run at different cycles then surely so does property? … the short answer is yes. This is why the QLD and WA property market cycles have historically followed NSW and Victoria by as much as one to three years!
This also holds true today where in the last two years we have seen an upswing in NSW and Victoria while QLD and WA have languished, despite the onset of a mining boom in the country’s two biggest resource states. There are of course other factors driving this but its not an outright negative as it bodes well for the future as the QLD and WA economies benefit from the flow through of the mining boom (particularly for QLD when other market fundamentals are considered and the additional boost from the reconstruction after floods and cyclones).
Trends are not the ‘be all’
So many property investors focus on ‘trends’ as the answer. While trends are important, especially in long established areas, they are not always the best indicator of potential future performance. It is also vitally important to understand how the economic fundamentals have driven the particular market in the past and what are the changes to these fundamentals in the future, either directly or as a function of changes in the economy. In 2000 there were plenty of people talking up Sydney and Melbourne. 10 years later the same money would have returned far more had you put it in Perth or Brisbane – over 5% more. New rule of thumb, don’t follow the trends, hunt out the new ones!
It’s like printing money
For us the current lack of activity and position in the market cycle in QLD means that there are some great opportunities to be had in areas we beleive have all the right fundamentals in place for strong ‘above trend’ growth into the future. What do these ‘opportunities’ look like? – they look like several properties we’ve been able to source recently for our clients: CBD (or close to CBD) house and land packages with 5-6% yields and significant additional equity (some $50,000 to $100,000) on completion.
Why, because the market is ‘quiet’ – this is exactly the time to buy. It doesn’t get better than this. When everyone else catches on (that delay I was talking about) how much more has already been made by those acting today?!
It’s not only our clients who can see the ‘today’ window in the right market who are benefiting, we’re putting our money where our mouth is too. Based on our research we are sourcing a number of larger opportunities through our development company and having just secured a unit development in North Queensland, we are currently looking for others in the South East corner. Today is the time!
When you are seeking advice for your trusted circle of experts – ask them this question ‘what are you doing with your money?’… I guarantee the answers will be very revealing.