Monday, June 17, 2024
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Would You Like An Investment Property With That Big Mac?

Given the Global Financial Crisis (GFC) and recent economic data – particularly coming out of Europe, why would you even entertain the thought of buying an investment property?

The landscape has changed and while real estate was once considered a great investment, it is now a thing of the past. With well respected commentators such as Associate Professor Steve Keen (University of Western Sydney) predicting property values in Australia will decline by up to 40 to 50 percent, real estate is probably the most risky investment option available today.

I have only one thing to say to all that – what a load of garbage!

It appears these predictions of property ‘doom and gloom’ are based on very unsound principals including direct comparisons with the United States (US). The Australia property market is very different to the USAs is the finance market and its regulation.

From an historic perspective based on available figures from Residex, the property market median price in Sydney has grown from approximately $2,000 in 1905 to around $700,000 in 2010. This confirms the general rule of thumb that property prices double about every 10 years. The question we need to ask is: will this continue OR will history change?

Any response to that question is ‘crystal-balling’ and I’m not about to go there. However there are a number of factors that strongly suggest investment in real estate remains a smart move. The National Housing Supply Council, in its 2nd State of Supply Report 2010, predicts that the (already existing) gap between supply and demand, will continue to grow over the five years to 2014, the overall gap is projected to grow to 308,000 dwellings.

Given that everyone is involved in real estate – either as a tenant or owner (nothing has changed there) AND the banks are still prepared to lend (nothing has changed there either) – I am prepared to say that on the ‘balance of probabilities’, it’s likely that property will continue to do what’s its always done and double every 10 years or so.

So, let’s get back to my original question (above) – why would you even entertain the thought of buying an investment property? Almost seems like a silly question now.

Maybe I’m biased (OK I am biased), however I know where I will continue to put my money – there really is nothing like ‘bricks and mortar’.


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