Below Market Value

Property Market News to wrap up the week...

Hi all,

The RP Data-Riskmark Home Value Index released this week so I thought I'd give you a snapshot of the points investors should consider.

If you've been reading Below Market Value blogs you'll know all about the 7-10 x7-10 Strategy. It's based on the biggest assumption that we make in property - that it will double every 7-10 years (as long as you invest in areas with good, solid fundamentals). Now there has been a tonne of speculation in the media about how Aussie house prices will hold up long term against the GFC.

Figures of note issued by the ABS show rents have increased at a 4.9 per cent annualised pace in the first half of 2011, which is well above the rate of core inflation. RP Data-Rismark carefully estimates “hedonically-adjusted” gross rental yields for all capital cities and the national market. Across Australia, units were yielding 5.0 per cent in August while houses generated 4.3 per cent.

In pure capital terms, Australian capital city dwelling values have declined by -3.2 per cent over the 12 months to August 2011. However, accounting for rents, the total returns have been a positive +1.1 per cent over the year.

The capital values returns vary city-by-city. With Melbourne (-2.0 per cent), Perth (-2.0 per cent), Adelaide (-1.8 per cent) and Brisbane (-1.6 per cent) negative total returns over the first eight months of 2011, Sydney (+3.4 per cent), Canberra (+2.8 per cent), and Darwin (+1.8 per cent) are in the black.

So what does this mean? Well firstly, as always take all of these statistics with a pinch of salt. Whilst it's good that there was an overall increase in values you might not feel so confident if you're trying to sell a property in Perth. There's a less to be learned here. As an investor whatever the weather if you educate yourself, do your due diligence and buy with good solid fundamentals you wont need to stress. Things like 'Home Value Index Reports' will be an interesting read but won't mean the sky is falling.

That being said, with values down in some areas it could be a great opportunity to jump in and snap up good deals - just do your research first. For those of you feeling the squeeze there's some good news - The Reserve Bank is holding on any rate rises for the moment so you should be able to breathe easy at least until December.

If you've already bought and you're seeing your property drop in value just hold on. The most important thing to remember is that property cycles, prices go up and down but the long term trend is upwards. you need to adapt your strategy to the market and always be cash-flow prepared so that you can afford to hold through the slumps.

If you've got questions on any of this give the team a call on 1300 533 713.

Invest with knowledge,

Mick Conyngham