Confused is the word that best describes the real estate market at the moment – at least as far as the media and a variety of gurus are concerned. There are so many different views on where the market is heading that meaningful analysis seems impossibly hard.

Sure, the market is flat and properties have lost some value in recent months. But that just means there are more buying opportunities.

Despite the worst predictions, in the past year Melbourne dwelling values fell just 5.8% according to the latest RP Data figures. Even though prices may remain flat for a while and some properties could fall further, there’s absolutely no reason to expect a crash as the media would have you believe.

There are only four things that could make our property markets crash: Recession, High Unemployment, High Interest Rates, and Oversupply.

Recession is extremely unlikely in the face of our current resources boom. Rather than high unemployment we are seeing a shortage of skilled labour necessitating increase immigration. High interest rates are not going to happen any time soon as we have just had a reduction and may yet see another. Property oversupply also won’t become a factor as we have a national shortage.

HSBC’s Chief Executive Economist, Paul Bloxham, points out the dwelling price to income ratio has remained stable since 2003 at between 3.5 and 4.5. He is forecasting growth in disposable income per household of around 5% per annum over the next few years on the back of strong employment and wages growth – a pointer house prices will grow at this pace.

The fundamentals for a strong medium and long term market are sound as Australia has a strong economy, full employment, rising wages, affordable interest rates and a growing population.

“Historically property prices go up in small booms, catch their breath and sometimes even drop before moving up again.”

“In reality, potential short term problems only underscore the importance of sticking to the basic rules of property investment. Look for property at the right price, in the right location, with the right rental income.

“This market provides opportunities below intrinsic value as a hedge against further falls.

Buying a property which you can add value, either by renovations or redevelopment, is another sure protection as you are literally manufacturing capital growth and increasing equity.

“If anything, the market lull will create opportunities for astute buyers”

 

Written by Paul Kounnas