The lion’s share of your property’s value is in the land, therefore you should always buy houses rather than apartments.
Have you heard that one before?
It’s an oldie but a goodie and harks back to those days when everyone believed a house on a quarter-acre block would always be the most sought-after property.
Generally speaking, houses are more valuable than apartments – at least if you’re looking in the same location.
But that doesn’t mean houses are always the best investment, or that “family-friendly” apartments are not capable of delivering substantial profits.
Try telling that to the many investors who bought established apartments in the inner or middle ring suburbs of Sydney or Brisbane a decade ago and who’ve seen the value of their properties increase significantly since then.
Over the last few years “investment grade” apartments have held their values well and their owners have done better than many who bought houses in the wrong locations.
In fact, because of affordability issues 2024 is shaping up to be an extraordinary year for established “family-friendly” apartments -what many of us call “flats”.
It’s true that over the last decade or so, the capital growth of most Melbourne apartments has been underwhelming, to put it mildly. Yet Melbourne’s apartment market is well-positioned to reverse its poor growth trajectory of the past 5 years.
Be careful… ‘off-the-plan’ apartments and those in large, high-density blocks (think more than 15-20 units) rarely match the performance of their scarcer counterparts.
Scarcity isn’t just a buzzword—it’s the engine driving capital growth, making these larger developments less attractive from an investment standpoint.
So let’s look at three other common “lies” you’ll hear about property investing.
Property lie #2: The “Australian property market”
It always makes me chuckle when I hear someone talk about the ‘Australian property market’, or the ‘New South Wales property market’.
In fact, digging deeper and even referring to the ‘Sydney property market’ or the “Brisbane property market” is a fallacy.
You see…each of our capital cities is comprised of dozens of suburbs, and each one operates with different supply and demand drivers and varying fundamentals, which combine to determine the performance of that specific market.
To drill down even further, within each suburb there are varying factors related to location that can impact a property’s value.
A house on the water with uninterrupted ocean views, in a street full of multi-million dollar homes?
Obviously, that’s going to be worth more than a house of the same size, age, and quality that is located three streets away in an unkempt cul-de-sac, where the only views are of housing commission flats.
Fact: There is no such thing as ‘one’ property market.
Each state has multiple markets created by different geographic locations, different price points, and different types of property.
Property lie #3: House values double every decade or so
You’ll often hear people say that properties double in value every 7 to 10 years.
That’s just not true.
The table below provided by Stuart Wemyss of ProSolution Private Clients shows that over the last two decades average capital growth in our capital cities was just 5.3% per annum, and do you need around 7% annual capital growth for the value of your property to double in 10 years.
Interestingly capital growth was not stronger in the previous two decades as you can see in the table…
The great news is you can outperform the averages, obviously, some properties outperformed their state averages while others underperformed … I guess that’s how averages work.
Fact: Not all property is created equal and you can’t just buy any property and hope it will make a good investment and substantial rise in value.
The secret is finding an “investment grade” property that will outperform the averages.
Property lie #4: You should always buy at the bottom of the property cycle
You’ve probably seen the ‘property clock’ which depicts the cyclical nature of the property market with midnight representing the peak of the ‘hot market’, and 6 o’clock representing the bottom of the cycle.
At a very simplistic level, it makes sense to buy at the bottom of the market, but that’s not the only factor that matters and the bottom is only one day which none of the experts can pick till the market has moved on.
Sure buying at the bottom of the cycle may mean that you score a bargain – but if that market stays in the doldrums for several years (or longer), then what have you really achieved?
Fact: Buying near the bottom of the cycle may seem like a great idea – it’s what some people call “hot spotting.” I call it speculating!
You make your money when you buy your property, not because you bought it cheaply, but because you bought the right property – one that will be in continuous strong demand by a wide range of owner-occupiers who can afford to and be prepared to pay to live there.
Of course, these are just some of the many common “lies” being perpetrated about property – there are dozens more to be wary of.
My point is to be careful about what ‘wisdom’ you believe when analysing the property market and the potential deals within it, as it’s easy to be fooled by fiction dressed up as fact.
