Seeing through the mixed property messages

We live in interesting times don’t we? The media is once again obsessed with fear and gloom.

Just open any paper or turn on the news and you’ll see the worry list for investors has blown out again to include: the global economy, European debt problems, US housing, Japan and closer to home problems with our property markets.

Depending on where you live, property values in your state would have grown a few percent or dropped a few percent overall. Of course we all know that the value of certain properties fell much, much more than that. Some segments of the market, in particular holiday properties, mining towns and some rural properties dropped markedly in value.

Bad news is abundant. So what’s in store for our property markets for the rest of the year and does the fear that’s overhanging investment markets mean crisis or opportunity?

We’re continually confronted with a bundle of mixed messages.

At other times our flat property markets would have been a terrible result, but against the backdrop what’s happened to property markets around the world and to other investment alternatives, the way our property markets performed over the last year was actually not so bad.

Sure things are tough in some regions, and I’m not pretending that this year will be easy – it won’t be. But it will definitely be a year of opportunity. It’s another year when the gap between the rich and the ordinary Australian will widen.

Before you say; “Oh Michael – you’re not going to recommend buying property again,” let me remind you, and I’m sure you’ve witnessed this phenomenon: some investors seem to do well in good times and do even better in tough times, while others do poorly in good times and even worse in tough times.

Why is that so?

Quite obviously if they consistently do well overall, even in those markets where others fail dismally, it must be something internal, something within them that makes the difference. If you’ve been to any of my seminars you would know that I believe it’s an individual’s mindset, more so than any other external market force, which determines success.

Some investors will do very well in property over the next few years because they can filter through the clutter of mixed messages. While many people will be sitting on the sidelines waiting for things to get better, a small group of savvy investors are out there already taking advantage of the opportunities the markets present.

I recently reviewed the house price statistics for the last 12 months for Brisbane – a market that many would say has been flat. Interestingly, in a year when the overall growth in median prices was negative, there were quite a few suburbs that experienced an increase in median prices of around 15% and some grew by 20% or more. And it’s the same when you drill down the statistics in the Sydney and Melbourne property markets.

As you can imagine some of these are the suburbs we targeted for our clients at Metropole last year. Of course not all properties in those top suburbs increased in value to that extent. You need to know the right type of property to look for.

By the way, there were just as many suburbs where the median price fell by over 10%, again showing that you have to be very selective in this market.

In the previous few years during the stronger property markets, even inexperienced investors did well. So did the speculators and the foolhardy. It seems everyone can make money from property at the top of the cycle.

But our property cycle has clearly moved on and the market conditions have changed significantly, which has seen inexperienced investors or those that did not stick to strong property fundamentals in trouble.

No surprises there – this happens every cycle.

Has the market bottomed?

If I’m suggesting you consider buying an investment property now, does that mean the markets have bottomed?

Honestly… I have no idea – but the answer is probably not.

My question to you is: “Are you buying ‘the market’?” Clearly the answer is NO!

You are investing in a property or a small number of wisely selected properties. This means that for astute investors there are some incredible opportunities around. There are currently quite a few very motivated, and at times desperate, vendors out there and this creates some top buying opportunities for long-term investors.

So back to the question – has the market bottomed out?

Probably not. My view of the property market could be summed up simply as follows:

1. I have very strong positive views on the property markets in most of our capital cities in the medium- to long-term.

2. I am certainly aware of potential short-term problems related to the lack of confidence about the economy, affordability and poor market sentiment.

3. You should be looking for property at the right price, in the right location, with the right rental income. One that you would be happy to hold in your portfolio in the long-term that’s bought sufficiently below market price, so that even if the market fell a bit further, you would still have bought well.

Just to make it clear, my strategy for this time in the cycle is to continue what I have been talking about and doing personally for years. That is:

• Buy the right type of property – one that has some element of scarcity, which will always make it appealing to owner occupiers (who push up the prices) as well as tenants.
• Buy at the right price – currently this is below intrinsic value. The type of price where even if values dropped another 5-10 % (and I don’t think they will in most areas) you will be covered.
• Buy in an area that has always outperformed the market.
• Buy a property with “a twist” – for example a property to which you can add value – in times of flat capital growth you should manufacture some capital growth through renovations or redevelopment.

I started this update by asking will this be a year of crisis or opportunity? When, in a year or two, today’s property markets are looked at in the bright light of hindsight, you’ll probably say, “I wish I bought a property then at those prices!”

Are you ready to exploit the opportunities that will arise?

Michael Yardney is the director of Metropole Property Investment Strategists, a best-selling author and one of Australia’s leading experts in wealth creation through property. For more information about Michael visit www.metropole.com.au and www.PropertyUpdate.com.au.