Property Investment Articles

Is property about to take a nose dive?

I wanted to share with you guys today is a little bit of an insight into what’s been happening in the Australian property market, relative to what’s happened in the past. This is actually a great graph put out by Morgan Stanley about the Australian property market, and I guess the first thing that you can see is that Australia is no stranger to dips or drops in the property market. In fact, if you look back over the last 40 years, there are six times where the … I’m just counting, one, two, three, four, five, six … where the market has declined more than, say, 5%. In particular, I would draw your attention to, you can see around June of 1985, the point in time where negative gearing was removed by the government, you can see the further drop in the real estate market, and then you can see the green triangle where it’s actually been reintroduced.

I guess the points that I want to make in terms of people who are contemplating investing and have major concerns around a bubble or anything like that is that, first of all, for the market to fall significantly, say for example in the vicinity of, say, 12%, you would need to see one of three major things happening, being, first of all, a major drop in the level of population growth, the second thing would be a hike in interest rates, and then the third thing would be a rise, or a significant rise, in unemployment.

Now, the government is certainly a hell of a lot more tuned into those levers now than they may have been in the past, so there’s a lot of awareness around policy making which may cause any of those three things to get out of kilter. As you can see right now, we have been … and obviously this graph doesn’t extend as far as 2018 … but we’ve definitely been through a boom period over the last five to seven years in Australia, mostly driven by the two major capitals.

But I guess the reassuring thing I would say right now, is the fact that our housing market is probably the single biggest asset that Australians hold, worth in the vicinity of $7 trillion, and what that actually means is that it’s highly unlikely that the government are going to do anything which significantly rocks the boat. The great news about that is that, as an investor, sure, definitely we are likely to see a winter period coming up, and there’s all sorts of precautionary and strategic things that you can do to protect yourself during that phase, but in general, what I’m trying to highlight here is that things like the 60 Minute report that came out a few weeks ago, predicting a 40% drop in the price of real estate, just seems like hype to me, seems unrealistic.

I’ve been studying the economic arguments around different things for many years, and it’s really apparent that every year for the last 15 years, I’m reading reports, especially in early January, which talk about a potential crash in the property market and a property bubble, and none of those things have come to fruition in the last 15 years, in any enormity.

Anyway, I hope you found that useful. Love to hear any feedback that any of you have got, or any agreement or disagreement about this, but, yeah, I look forward to connecting with you next time.

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