Don't let the Dementors get you down - Australian property is not on a cliff's edge

We are indeed fortunate to live in Australia – despite watching on while other nations slide into a never-ending spiral of debt while dealing with street riots and country-wide strikes, our biggest concerns seem to be concentrated on comparatively quibbling matters such as the “boat people” debate, or whether we’ll have an early election.  This is not to say we’re sailing along without a worry in the world because quite obviously there are sectors of our population feeling the pinch, however relatively speaking, we’re doing OK.

The RBA released its Financial Stability Overview this past week, which largely reaffirmed a positive outlook for Australia.  Perhaps the most reassuring news to come from the review is our cautionary approach to spending and borrowing which has encouraged households to take stock of their financial situation ensuring we’re well prepared for any future mishaps. 

The report specified that over half of Australia’s mortgage borrowers are making “substantial excess principal repayments” on their loans, as well as increasing household saving.  This savvy approach to financial management is important, because quite clearly the path ahead is going to be unpredictable and rocky.  The last thing we need is rash spending and extra inflationary pressure – particularly in the housing sector.

However sometimes it seems as if we’re living in world of Harry Potter “Dementors” who are sucking the very optimism out of the air – keeping us on a cliff’s edge waiting for someone to shout “fooled ya” and strip the sunny illusion away.  The number of “experts” who fill the news headlines each week with predictions of a 40% house market crash is disturbing because our housing market is founded on a very stable platform, principally driven by an increasing population and supported by a healthy banking system. 

It could be argued that the doomsday effect of media headlines is relatively harmless, however when it comes to investment, running sensationalist stories can have far-reaching effects because aside from supply and demand, the greatest influence on our market is perception. Whether we recognise the folly of a debate or not, we can’t help but be influenced – hear a message enough times, and your subconscious starts to believe it.

If you’re wise however, and take a more rational outlook, there’s a lot to be learnt from the current doldrums. Flat markets can teach us a valuable lesson because they test the “real” strength of demand without being unduly distorted by bullish speculation often apparent during a boom.  If you understand what performs well in a flat market, you’re better placed to take advantage of the current conditions which are by and large extremely favourable for investors.

Essentially a property is only worth what a buyer will pay and reassuringly for the wise buyers and vendors, the sales results coming in from the homes displaying the right attributes assure that even in a turbulent environment our metropolitan market has the potential for growth.  This is borne out in the latest quarterly residential data, which shows an increase in the median house price of 1.5%.  Each week I attend six to eight auctions, most of which are properties located in areas with the potential for good long-term growth and the right attributes to attract healthy interest. 

Providing vendor expectation is at a reasonable level, the property will attract competitive buyer activity and consequently achieve a good price.  Importantly, it’s the vendors who purchased and negotiated well initially who are outperforming the current flat conditions. Therefore the key to successful investment is at the buying end of the process – get this part right, and the selling side will largely take care of itself.

I wish it were easy to quickly quantify the difference between a good and bad investment. Statements such as “A, B and C” or “investment-grade” properties are bandied around among various commentators as if there’s a secret list in circulation. However, there’s no one size fits all when it comes to property investment.  Each individual needs to be assessed based on their financial needs and long term objectives.  Whether a renter or owner real estate forms an essential part of our everyday lives, however this doesn’t mean we have the necessary experience to make the right choice when it comes to long-term investment. 

If you’re submitting a tax return you go to a registered accountant, if you’re thinking about insurance or investing you talk to a licensed and registered financial planner, therefore do the same if you’re thinking about investing in real estate – seek out a licensed real estate expert to assist you in the process.

Catherine Cashmore is senior buyer advocate for JPP Buyer Advocates – the largest dedicated buyer advocacy service in Victoria. With extensive experience in all matters regarding real estate, JPP successfully purchases and negotiates more than $100 million worth of property each year.