By Martin Bell

In last Friday’s newsletter, January 15th, I spoke of some recent valuations I looked at for a few of my properties. During the week I received new information from RP Data (Nov 2009 figures) that included average growth figures for the past 10 years median prices. I thought this was timely and would be of interest; especially since we often talk about property doubling every seven years or so.

Firstly; Some “Ground Rules”

1. A Median price is the price at which there are as many sales below that price as above. Generally a more useful measure for comparison of growth in real estate prices than an average price. The median will be affected by the number of sales. If a lot of cheaper properties are sold in an area the median price will drop, even though the overall values did not drop. Median price is an indicator, but that’s all.
2. Units and houses. I have used separate median values reported for units for my units and townhouses. I used their house medians for my houses.
3. A seven year doubling cycle means an average of 10.28% per annum growth and an eight year doubling cycle 9%. Being conservative I tend to use 8 years in my own personal plans. Anything over 9% average means my plans work well.
4. Not all of my purchases were, in hindsight, the best choices and some of them I would not buy again. I have learnt a lot in 10 years.
5. Figures are from RP Data November 2009. Percentages are an average annual percentage, averaged over the past 10 years.
6. I have not owned all of these properties for 10 years so my results make be a better, or worse, average, depending on when the growth “spurts” were.

Looking Back 10 Years At My Properties

Starting at the top…

I have a townhouse at Holland Park – The increase in median prices for units here rose 19.9% per annum as an average over the past 10 years.

I have a house at Annerley – The increase in median prices for houses here rose 14.8% per annum as an average over the past 10 years.

I have two units at Annerley – The increase in median prices for units here rose 13.2% per annum as an average over the past 10 years.

I have a townhouse at Carina Heights – The increase in median prices for units here rose 12.5% per annum as an average over the past 10 years.

I have a house at Thornlie – The increase in median prices for houses here rose 12.3% per annum as an average over the past 10 years.

I have a unit at Tugun – The increase in median prices for units here rose 11.4% per annum as an average over the past 10 years.

I have a townhouse at Varsity Lakes – The increase in median prices for units here rose 11.2% per annum as an average over the past 10 years. NB: This is a pretty new area and I am confident the next 10 will easily outperform the last 10 years. In fact, 10 Years ago Varsity Lakes was virtually non existent; however, things have changed dramatically! See:

http://investmentmentor.com.au/from-the-desk/robina-varsity-update/

I have a unit at Northgate – The increase in median prices for units here rose 10.4% per annum as an average over the past 10 years.

I have a House at Ormeau – The increase in median prices for houses here rose 10.3% per annum as an average over the past 10 years. NB: this also is a fairly new area but I have to say this is probably a good example of why I would not tend to buy another house; they are usually located too far from all infrastructure, transport and so on. Again hindsight is a wonderful thing.

I have both a townhouse and a unit at Robina – the increase in median prices for units here rose 7.5% per annum as an average over the past 10 years. NB: Again this is a fairly new area. Ten years ago the town centre had just been built and they gave David Jones a rent free lease to try and attract people. Now it has $7 billion in infrastructure either completed or planned. This is one I would buy again today despite the 10 year average result. See:

http://investmentmentor.com.au/from-the-desk/robina-varsity-update/

I have a townhouse at Calamvale – The median prices for units here fell -1.5% per annum as an average over the past 10 years. However houses increased by 11.2% per annum. NB: I have actually had valuations done on this and it has gone from $143k in August 2001 to $375k (bank valuation last year). I think the unit medians are not indicative because there are very few units here. When I bought this townhouse it was surrounded by acreage; again probably not what I would buy now.

As I said in hindsight not all of these have been “great” purchases and certainly several of them I would not buy if I had the chance over again.

Looking Forward 10 Years At My Properties

OK, so that’s the past 10 years. What will the next 10 bring? To answer that we would have to drag out a crystal ball, as no one can tell you for sure!

I can only offer my personal opinion and from a “supply and demand” stand point I believe conditions now will better support price growth over the next 10 years than they have in any time during the past 10! We have the biggest population increases ever and a growing shortage of supply (these were discussed at length in last week’s newsletters). As it is with determining the worth of anything,  the number one driver of house prices over time will be whether supply falls short of, exactly meets or outstrips demand.

For those persuaded that Australian housing is fast becoming un-affordable and thus cannot continue to rise, please see how we would counter this argument:

• http://investmentmentor.com.au/from-the-desk/truth-about-housing-affordability/
• http://investmentmentor.com.au/from-the-desk/warning-on-property-prices/

What Do You Think?

I have given you my story and my opinions but I guess the question remains; what do you think?

The real reason any of us invest in property (or any other asset class) is because we desire an outcome (not a property). Your investment decisions should lead to a better tomorrow where you have more ownership of your time and more money to spend doing those things that are important to you.

To this end, mrd provides a safe environment where you can engage, ask questions and learn… assured that we will never interpret your desire for knowledge as a license to sell you something. Our services are both complimentary and without obligation; I encourage you to put us to the test!

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Happy Investing,

Martin Bell
mrd Customer Care Program… because investing is personal

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