How to achieve capital growth at this stage of the property cycle | Property Insights from Dr. Andrew Wilson

With our property markets moving to the next phase of the cycle, how do you create capital growth?

Do you have to change your strategy?

Today, we discuss

1. Some of the myths of capital growth.
2. The "5 P's"that actually cause capital growth.
3. Some likely trends for property in 2018, and  
4. I talk about what is ahead with Dr. Andrew Wilson, Australia's leading property economist from My Housing Market.

6 Myths About Capital Growth:

1. Population growth leads to capital growth. That’s only partially correct, but you need to find the right locations with the correct demographics and people with higher disposable incomes so they can afford to pay more for properties.
2. Invest in any capital city and experience strong capital growth. Not true – in each capital city there are multiple submarkets. You can’t just buy in any property and expect it to outperform.
3. Buy land and it will appreciate. Not all land is equal. Target where you will get above average capital growth. Inner and middle ring suburbs of our capital cities are the places to invest. Find areas that are gentrifying and locations where people want to live and are therefore prepared to trade space for place.
4. You can predict capital growth. There is no shortage of experts predicting the next hot spot.

But most have been wrong much more often than they have been correct - you must understand the level of accuracy of their predictions.

1. You are likely to get capital growth if you buy negatively geared properties. This is another myth as many negatively geared properties have experienced no or minimal growth. Negative gearings isn’t an investment strategy, it is just the way the property is financed at a certain point of time.
2. New developments are good news for an area. Not necessarily. These may lead to local population growth, but they often stifle the supply and demand ratio. The demographic may have less disposable income or be overstretched.

The 5 P’s of Capital Growth:

1. People
2. Purchasing power
3. Position
4. Property
5. Places

Some property market trends likely to occur in 2018:

1. Increased stock levels, as more vendors come to market and thousands of new apartments are completed following the construction boom.
2. A reduction in investor demand – due to lower consumer confidence and as owner occupiers struggle with affordability.
3. Flight to quality - the buyers remaining in the market will be pickier given improved supply
4. Auction clearance rates will fall back to the more normal rate of around 60%.
5. Price growth will continue – albeit at a slower pace, particularly in Sydney and Melbourne’s best suburbs.
6. There will be some minor price corrections – a healthy outcome following such a prolonged period of rapid growth.

The Bottom Line: don’t let yourself be distracted by the headlines. Yes, the boom is over but the opportunity to make money in the slowing Sydney and Melbourne markets will always be there if you keep a long-term view. There will be some good opportunities in Brisbane in 2018.

Links and resources:

• Michael Yardney
• Metropole
• Property Update App
• National Property & Economic Market Update Promo Code: Podcast
• My Housing Market Dr. Andrew Wilson
• Episode 1: What Makes an Investment Grade Property | Become the Pilot of Your Life, Not the Passenger

Quotes:

“After five years of an upward trajectory, we are now seeing affordability constraints, tighter lending criteria, and lack of consumer confidence. We have moved to a new normal.” Michael Yardney

“There are two things you can do about the new normal. Learn the new rules and understand how they work and take advantage of the current available opportunities.” Michael Yardney

“Real wealth from real estate is achieved through long-term capital appreciation and the ability to refinance and keep adding to your asset base.” Michael Yardney

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