PHOTO: Australia’s booming property prices means workers with an average income are more and more unlikely to get their foot on the ladder. Source: Getty/Yahoo Finance
We are in new territory.
Australia’s property market is going through an unprecedented period of growth that even the coronavirus pandemic can’t dampen.
Lockdowns across the country are becoming more onerous as the latest COVID-19 strain takes hold, pushing panic-stricken property markets higher and higher.
House prices are now rising at their fastest rate in more than 17 years, and they show little sign of slowing down.
Australia’s national median house price has climbed exceptionally close to the million-dollar mark at $955,927 – which is a huge 18.8 per cent increase over the year, or 5.8 per cent over the June quarter, according to Domain’s latest quarterly House Price Report.
So why are prices rising so fast?
Because there is a ‘perfect storm’ for house prices: low-interest rates, low housing supply versus strong demand, a flight to quality by investors and various government stimuli.
This combination is frustrating prospective first-home buyers who are being blocked out of the market as rising prices make buying property out of reach for many.
At the same time, the confusion caused by the lockdowns and the lack of supply is putting off many would-be sellers from putting their property up for sale.
BUT, the rules for property investing don’t change
While there is a lot of uncertainty clouding the market at present, for those property investors who do want to get into the market for the first time, or add to their property portfolio, the fundamental rules remain the same as ever.
Because no matter if the market is hot or not, those investors who follow these timeless rules for real estate investment are likely to achieve ultimate investment success.
9 rules to succeed in today’s property market
Let’s look at 9 key beliefs for property investment, no matter what point of the economic or property cycles we are in.
Rule 1: Your long-term aim should be capital growth
Capital growth, or capital appreciation, is simply an increase in the value of your investment over time.
And this should be the ultimate goal for every property investor.
Because while cash flow keeps you in the investment game, it is capital growth which gets you out of the everyday rat race.
Building wealth through real estate is best achieved by buying quality investment-grade properties and holding them for the long term, allowing the market to do most of the hard work for you.
You see… residential real estate is a high growth relatively low-yield investment.
Sure after all expenses, your net yield may be less than 3 per cent.
But when you consider the capital growth you’ll achieve from a well located property, the overall returns are very good, especially in today’s low interest rate environment.
And as this capital growth is not taxed unless you sell your property – and why would you do that – this enables you to reinvest your capital to generate higher compounding returns.
On the other hand, rental income is taxed, leaving less to be reinvested.
This means for investors in the asset accumulation stage of their journey, the more capital growth you achieve (even at the cost of lower rental income) the more wealth you will accumulate in the long term.
The bottom line is that if you build a substantial asset base over time you’ll have choices how to live your life and if you don’t have a big asset base your choices will be more limited.
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