Don't be swayed by superstition

By Catherine Cashmore

Tuesday, 14 February 2012

Ever had one of those days when you’re feeling a sensation beyond common understanding? Superstitious uncertain elements in our lives leave us with the uncomfortable feeling that some unknown, uncontrollable, pre-dictated event is “meant to be”.  It might not be the foundation of your belief; however, it’s a common feeling that most of us experience at some point in our lives and often bears unruly influence on the path we follow.  It’s particularly influential in the purchase of residential property – often stemming from elements that are buried deep in our subconscious memory.

We have the unfortunate ability to learn and speculate on future events based on influences that may or may not be working to our advantage, yet in order to really take control of our future, it’s futile to try and divorce ourselves totally from this questionable influence. The trouble remains, that all investment choices are – to some extent – speculation.  Using the recent financial catastrophe as an example, it’s possible (with savvy use of Google) to seek out those who predicted the fall and those who totally missed it.  With so much uncertainty circulating financial markets now, how enticing is it to bet on their other predictions to see if they also came to fruition?  Especially as the overriding sensation when looking at US or European residential markets is to think similar events could happen here – even if they were to occur under different circumstances.

However in Australia, when it comes to property investment there are certain things you can “speculate” on and be as close to 100% certain as speculation can get. Australia has the most transparent property market in the world.

In detailed surveys conducted by Jones Lang LaSalle, Australia consistently ranks as number one out of 81 markets across America, Europe, Asia Pacific, the Middle East, and North Africa.  For those interested, the survey covers, performance measurement, market fundamentals, listed vehicles, regulatory and legal environments and detailed elements of the transaction process. As Jones Lang LaSalle correctly point out, rising levels of transparency are important in terms of attracting both local and foreign investment and also ensuring market regulation.

However, while transparency doesn’t prevent elements that lead to market crashes, the free (or at least readily available) flow of information has the ability to speed up recovery in markets where transparency bears a priority – and Australia bears the best example.  The information available to our property investors is sight to the blind. In fact such is the detail contained in various property reports, including detailed suburb specific statistical information, the probability of walking into a property disaster is diminished considerably. Careful analysis of the data will also enable investors to time the market and purchase at the correct stage of the property cycle.  All in all, we have information and qualified advice available to ensure one of the top rules in real estate investment is adhered to: not over-paying in the first place.

Another sure thing in Australia is population growth.  In Australia, we’re averaging higher immigration than China, the US, Canada, Indonesia, Saudi Arabia and most other.  Furthermore, a quick analysis of information collected and free to all from the Australian Bureau of Statistics reveals exactly where our population is heading – the capital cities.  Even though we consistently rank in the top five for the least number of inhabitants per square kilometre, due to the unique topography of our land and climate, 85% of our population live within 50 kilometres of the coast in urban landscapes.  Well over 70% of our population is squeezed into the capital cities, with some growing faster than others.  The demands on infrastructure and existing amenities along with the challenges associated with sourcing skilled labour to build the accommodation needed to meet demand ensures consistent uprising pressure on existing property prices.

While it would be remarkably foolish to use these statistics to totally weather against the possibility of a “popped” market in some localities, it’s possible to pinpoint areas where demand will be consistent and land will remain in short supply and therefore continue to be a highly sort after asset.  A brief look at the 2030 plans of each capital city will give some scope of the relatively swift changes that are set to occur in our demographic structure, and this information will ensure educated assessment of the other major influence of property prices – supply verses demand.

If you get the supply/demand equation right, with the right property, suited to the right demographic,  you’re assured – even in the worst times – you’ll attract consistent tenancy and in the best times, solid capital growth.

For property investors, any confusion over the particular buyer market to target is another major deliberation that needs to be taken into account to ensure long-term demand.  However, risks of missing approaching trends can easily be diminished when evaluating the makeup of the future Aussie purchaser.   For example, by 2050, the Asian market is expected to dominate the Australian population.  As I’ve pointed out in previous articles, Asian buyers have a completely different emotional relationship to property than the now influential Australian/European purchaser.  Trends include a preference to modern interior designs, apartment living, or in areas of prestige, trophy home mansions designed to impress.

Providing you’re familiar with the local state or suburban landscape, it’s easy to pick out areas where this type of buyer market will have prominence.  Other considerations – such as school zones for example – indicate that buyer trends will incline towards family homes rather than units or townhouses.  It may be time consuming, however detailed information on local markets, developing infrastructure, buyer trends, zoning and heritage overlays, are free and accessible to anyone who cares to seek out the data, thereby cutting out the need for risky speculation.

Providing the purchase is a long-term acquisition of 10-plus years, all the major rules to diminish risky property investment are covered:  What to pay, where to purchase, and what to buy. However, other elements, dependant on real future unknowns, will certainly bear effect on short-term price movements (hence why property investment must always be a long-term plan).

It’s largely agreed that buyer and investor uncertainty has played a major part in the recent slump in Australia’s property cycle. When the RBA come out with statements such as “global uncertainty”, it’s effectively code for “we just don’t know”. From the recent overwhelming “expert” consensus that rates would drop to the out-of-sync movements between of the major banks and the RBA, it seems leading economists would have better odds betting on the Melbourne Cup than they would educating the general population.

Furthermore, in less than four years, we’ve gone from a generation that had no physical memory of recession and an $80 billion government surplus to some $153 billion of budget deficit and a global economy that looks a deeper shade of black.   Major retailers such as Borders have closed their doors, not to mention the scores of small traders and businesses who can’t keep their heads above water.  Job losses in manufacturing and a ridiculously high dollar just add to the mix.  It’s all very well stressing the strength of our mining sector, population growth, and  rosy outlook in comparison to other markets – however, short-term uncertainty has a far greater effect on  a society used to changing jobs every few years and milk-fed on Australia’s class-free “anyone can make it” mindset.