What’s going to affect the value of my property in the long term? – Property Investment Update

Property investment update

I found an interesting article which talks about the factors that may affect property prices over a long-term. It suggests various reasons for property price movement, assuming demand-supply to be the core factor. Of course, demand and supply is also determined by a host of sub-factors like taxation system and affordability of housing.

The writer passes a few key statements in the beginning.

• Australian population will close in on 30 million in 3 decades.
• Immigrants will be choosing major capital cities.
• It is well-known that Australia is suffering a shortage of development-ready properties. This is even truer for areas away from the coast.
• RBA is targeting an inflation of about 2-3%.
• Youth is finding the CBDs very attractive.
• Population explosion may imply more traffic and petrol hike would make transport links to CBD the key players.

RBA will become more conscious of asset-price inflation

The writer suggests how property prices will keep growing but not at a relentless pace. RBA will keep a firm eye on inflation not allowing too much credit growth. We have learnt our lessons from American mortgage crisis; this implies that banks will look for asset-price inflation a lot more closely than Consumer Price Index thus disallowing a bubble scenario.

Moving with this logic as base, the writer asserts how household incomes would impact property prices. It is statistically proven that a large increase in the number of two-income households has boosted median household income growths. The median household income figure is likely to come down to 4-5% from 6%. This would also affect median dwelling price, bringing it down by a notch.

Strong long-term price escalations indicated

For our properties, we need to bear in mind that a boom generally succeeds a long phase of level prices or diminishing prices. Thus it is a must to capitalize on as many booms as possible. Prices rise because of inflation and if RBA successfully checks rates of inflation, we might have a more conservative price movement over a shorter frame of time. In time, however, the prices will rise breaking all barriers.

No difficulty in tiding over the ‘Median’

The writer does not have any doubts about treating properties as an asset class. We can easily tide over 5% median property price growth if we carefully invest, targeting only those properties that are in demand. Properties that can be easily home staged or renovated may also be the right choices.

The writer feels that it would pay to invest in small unit investment-grade properties near CBDs. In these suburbs, the properties are bound to run at least 2% above the moving average for median growth.

Rounding up

I believe that the lack of development-ready houses, poor land-and-house package structure and vagueness in allocation of commonwealth lands are prime concerns. If these issues are handled and adequate changes are made in the taxation system, our homes will come to us without the over-valued tab. With affordable inflation, controlled Consumer Price Index, and reasonable Median property price growth, we can then look forward to sustainable growth in our property prices.