Wow! I got some interesting responses back to my email yesterday about whether the interest rate will crush the property market.
Let me just say that my view is based on my opinion… And my opinions are based on my experiences.
The feedback in general was mostly supportive of another strong year in real estate and some of it coming from a cautious position after significant capital growth…. And some of the feedback was simply plain dumb.
Let me just say this…
Property is a generic word. What I mean by that is that not all properties are the same.
For instance, you could have bought property 3 years ago in the outer-rings of major capital cities and be hearing about all this capital growth and you're scratching your head as to why your property hasn't moved a cent.
It comes down to property selection and criteria, as well as your own personal circumstances and where you are in life.
Now, I'm not going to get too much into that, because I know it's just going to open up a whole new conversation.
My view is simply on a long-term basis. I'm considering property today for what it would be worth in the next 7-10 years.
There's no point playing the short-term property game. The cost of acquisition will kill you… Unless of course you're a developer type who has made a business out of real estate.
Anyway, I promised you yesterday I would reveal to you what I think is a great opportunity in the market place today, as well as the markets that I would be looking at closely and researching.
The property market I'm going to reveal to you:
* Started it's early recovery late last year after 3 years of little growth.
* It had a net-migration of 55,000 international migrants in the year ending '07
* Demand for housing is running at 32,000 per annum
* With it's current construction only 16,000.
Now, one word of caution… Not every property in this area is going to grow. The style of property that I'll be looking for are units/flats.
I'm going to discount anything brand-new. I'm not interested. I want units or flats that are at least 20-30 years old, (2-bedroom preferably).
The market that I'm talking about is Sydney.
Here are a couple of areas that I've researched and I like.
* Surrey Hills
* St Peters
* North Ryde
Hey, that's my view… and my opinion. But they are not the only markets that I think will experience significant growth in 2008.
The trend at the moment is certainly in Melbourne and Brisbane. And in those markets, you should consider the ripple effect.
Briefly, what the ripple effect is, is that owner-occupiers and investors get priced out of the inner-suburb markets and start to look at the middle suburbs. This has certainly already started to happen in both of the above markets.
Here's something I'd also like you to think about…
The trend Nationally is to the unit/townhouse investment, simply because of its affordability.
For instance, investors in Sydney who chase capital growth have long-ago given up on buying houses and now buy old-style units and apartments as their preferred investment vehicle.
This trend I see happening in Melbourne in the inner-suburb ring. For instance, a fantastic blue-chip investment is an old-style unit in St Kilda or Elwood. Always tenanted and always in short-supply. So I think the investment trend in Melbourne will start to lean towards this type of property.
What about the other markets?
Yeah, I know Adelaide and Canberra have done well in the last 3 years but I think there are far more profitable markets. The ones to stay away from would have to be Perth and Darwin. I'm sure that's not news to you.
Anyway, that's a fairly broad picture that I want to paint, but what you must consider is that no matter what market you are in, if you are presented with or you can create value, it doesn't really mater much if you're a long-term investor.
I often say to my friends who care to listen, “How much real estate would you have liked to have bought at the extreme top of the 1990 market (remember we went into a recession just after that)?”
The answer… As much as you could possibly cash flow.
Would you like to know the median house price in 1990?
Believe me, I don't live in the euphoria that real estate prices ALWAYS go up, even though statistics may suggest that. My point is if you're waiting for real estate prices to “come down” as one gentleman emailed me, you'll be waiting for a very long time.
Let me ask you another question… How much real estate would you have liked to have bought in 2003? Answer… As much as you could possibly cash flow.
The median house price in Melbourne was $359,000.
Today, the median house price in Melbourne is around the $430,000 mark… And will probably increase throughout 2008.
Now, I'm only using median house prices to illustrate a point and because I live in Melbourne, most of my friends are here.
The fact is, I'm not selling you real estate, so my argument and bias is not to get you into a property. I'm a buyer in this market, but I'm not foolish enough to just buy anything. I know the kind of stock and the markets that I'm looking into.
My suggestion is, do your homework, do your research, get finance ready, go out there and do a deal. We may never see these real estate prices again.
I'd love to hear your comments.