When investing, we look at things from a different perspective to a home owner and what may be fear and trepidation to one is a potentially burgeoning opportunity to another.
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”
- Warren Buffett
So how do you interpret the headlines and the media commentary on our property markets as an investor?
Let’s look at some other recent headlines:
Tough times puts halt on new homes – Gold Coast.com
NEW home building is set to slump and will not pick up again for three years. That’s the bad news from the Housing Industry Association, which says the Gold Coast will be hard hit by the slide in housing starts and mortgages. A big drop in new home building starts is expected to lead to a shortage of nearly 11,000 homes in this financial year alone, said HIA executive director (Queensland) Warwick Temby. He said the poor showing for new housing came at the wrong time for a state experiencing record population growth and new lows in rental vacancies.
New home building to fall by 20% in December quarter – Courier Mail
NEW home building in Queensland will fall by nearly 20 per cent in the December quarter, according to a just-released report on the residential market. “We have a relatively inelastic supply side, so no immediate bounce is expected and this is bad news particularly for those searching for affordable rental housing,” Mr Temby said.
House prices set to slide in capital cities
Credit growth braked to a 15-year low, while retail sales went into recession. As a property forecaster predicted that housing prices will fall 10% in the year ahead, fears are increasing for the economy, especially in the south-east. The markets, which until recently predicted another rate rise, tip the Reserve Bank to cut rates later this year – assuming the slide in the economy and the markets continues.
Three very strong and potentially frightening articles that would leave most people fearful contain gems that will leave the astute investor with a sparkle in his eye.
Over Sunday morning breakfast, I was listening to a radio interview with Tim Lawless; head of RP Data (a company that maintains records of house sales and similar data, right across Australia). RP Data is not a real estate agency. It is highly unlikely they would have any “vested” interest in whether the market moves one way or another. My belief is that Tim, more than most of us, has his “finger on the property pulse”.
Tim commented on the above report (House prices set to slide in Capital Cities) saying that it was “either very brave or very silly” and labelled it “sensationalist”. He said that while Perth had experienced some drop in house prices, the fundamentals of supply and demand still apply. That with 176,000 migrants entering the country we are building far too few dwellings (see other numerous mrd blog postings on this subject) and while the consumer demand may seem low at the moment, primarily because of the interest rates, he saw any drop of prices to that degree as very unlikely.
Supply and demand is still the determining factor of a product’s worth from banana’s to houses. Regardless of what else may be happening in other sectors of the Australian economy, everybody needs a roof over their head and they will either buy or rent and “water will eventually find its’ own level”.
If I invest in ‘liveable property’ in those places where the long term demand exceeds the available supply; then over the medium to long term I should see capital gains. Any short-term softening in the market will be short lived and, given that I follow a buy & hold strategy, not affect me personally.
Drops in new home building starts with the ongoing population boom leading to a shortage of nearly 11,000 homes this financial year alone rings of opportunity to an investor. Lack of supply and greater demand will not only ultimately increase the capital return but the rental return as well, leading to a greater capacity to hold the property. Housing affordability issues for first home buyers means more people renting, and more people renting means less rental properties available, pushing up rents again.
So are these articles positive or negative reports for property investors? If you believe as I do that long term capital growth relies on limited supply and increasing demand then these are very favourable articles indeed. There are of course, no “guarantees” in property investment, other than the guarantee that if you never invest in property then you will never make any money in property.
Martin Bell
Property Strategist
