sensational headlines
Thanks for asking my opinion (for what it is worth.)
The article you mention starts off by saying the Melbourne markets are patchy and that is very true. The article probably does not make it clear exactly how patchy they are.
What I would call “A class properties” are still selling, but there is clearly less interest from both owner occupiers and investors than there was before.
“B” & “C” class properties are not selling well. Some have dropped in value – maybe 10% - and some can’t be given away (well…it’s not as bad as that but you’d have to give a very steep discount for someone to buy them.)
Clearly the Melbourne market has stalled and in some areas gone backwards. I believe it topped in May this year.
Of course this doesn’t surprise me – I’ve been suggesting the type of growth Melbourne experienced for just over a year was unsustainable. I first warned about my concerns for segments of the Melbourne market in a market commentary called
Some risks ahead for our property markets
I’ve also written about this in my last few market commentaries:
5 property lessons for 2011 – where I talk share my learnings about the cyclical nature of our markets
Investment strategies in a flat market
The article you mention also shows how statistics lie.
There are lots of posts on this forum about how useful median prices are (Not!)
Does the drop in the median price in Middle Park mean all properties in the region dropped 37% or does in really reflect the nature and price range of the properties sold during the period in question?
That’s why I put more faith in RP Data’s Hedonic Index, rather than raw median prices, as this index takes into account much more than just the number of properties sold and their sale price.
It’s also RP Data’s figures that I take into account when saying that in general property prices in the inner suburbs have grown more than those in the outer suburbs over the last 5 years (and yes – of course there are exceptions.)
So are inner suburbs
“guaranteed winners”?
I don’t think you will have ever heard me say that.
We all know that location is only a
small part of it. You can have the wrong property in the right suburb (less than 10% of all properties are what I’d call investment grade properties) or you can buy at the wrong time or for the wrong price.
As for the comment that I don’t think rent is important, that’s clearly wrong. The rent my tenants pay helps pay my mortgages and fund my lifestyle.
But to me, there are 4 ways you make money through property investment and rent is only one of them. They are:
1.
capital growth
2.
forced appreciation – through renos or development
3.
rent
4.
tax benefits
A big part of our strategy at Metropole (and yes we do have a strategy) is to put a finance strategy in place to make sure our clients are not totally reliant upon the rents to services their loans.
Many investors find that if they are not as dependent on the rents to cover the negative cash flow, because they have financial buffers in place to service their shortfall for 3 – 5 years, they can afford to hold high growth properties until either the market turns or they increase in value sufficiently to refinance their loans.
So in summary, yes the property markets is moving on to the next phase, as it always does. We knew it and I’m sure most of the people on this forum knew it was going to happen. A smart property investor is a bit like a chess player and thinks 3 or 4 moves ahead.
I’ve found many investors don’t maximize their opportunities during the upturns and don’t have their portfolio’s covered to protect themselves during the downturns.
