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Ben Kingsley Blog post by Ben Kingsley

Please Keep Talking Up this ‘Property Bubble’!

This month’s comment is not going to focus too much on the hype surrounding property values and what they are worth today or the next 3 months, you can read my previous comments from other newsletters about how I have been predicting 10% or more correction in values in new housing areas where the majority of the market has mortgages, and also in the top end of the market.

In this comment I’m communicating with all those interested in making money and creating superior wealth outcomes over the longer term from residential property.  Now those of you who are long term readers of my comments will recall I am an advocate for ‘time in the market’ as it’s this strategy that will make you the greatest amount of wealth over the stretch, as opposed to’ timing the market’, whereby you think you can make it rich quickly.

Please allow me to justify my position if I may, before I highlight why I’m personally back in the market to buy another investment property in the next few months, maybe even two!

Take a look at the graph below.  This is Melbourne median house price from 1974 until March 2011.  Now the data that makes up this chart are 1974, 1980, 1990, 2000 and Sept-2010.  The graph tells the simplest of stories that property has had significant long term growth, during both the good times and the bad times, including wars, floating of the Aussie Dollar, recessions, introduction of GST, stock market crashes, the Global Financial Crisis, yet the long term returns have been very good.

Please Keep Talking Up this ‘Property Bubble’ Empower Wealth Ben kingsley

Source: Valuer General Victoria

These values in the graph show Melbourne’s median house prices have grown by 8.5% p.a in value over this 36 year period.  Now some of this data represents the total Melbourne market, therefore some properties have had fantastic returns of more than 12-15% p.a, when you also factor in their rental income, and some have been complete duds, returning around 3-5% (which is just covering inflation – so you still have to know where to buy and what to buy – there is a science to this).

Now historical records are no guarantee for future returns, which is what stops most people from taking an educated risk to enter the market, because they just can’t believe values can keep growing at this rate, the same view our parents had when they bought their properties back in the early 1970’s when properties were so expensive at $25,500 to buy (Median Price 1974).

But historical evidence is one of the best ways we can measure future performance, if the majority of the variables that make up the marketplace are similar to what they were in the past.  I take the view they are; we still live in accommodation, not caves, we still work to earn income, incomes continue to increase, our population continues to grow, our marketplace is an open market, so we have choices to live where we wish creating the demand drivers, we continue to be time poor, so we are choosing to live closer to employment centres, etc., etc.

That’s why I’m not worried about the current market hype around a property bubble, but rather I am incredibly excited about it, you see this ‘noise’ in the market scares off most of the following buyers: First Home Buyers, uneducated and uncertain investors, up-graders, and downsizers.

All in all, less competition puts me and other smart investors in the driver’s seat to buy well.

So in recapping my point, although it’s ‘time in the market’ that’s going to make me and my clients wealthier, it’s times like what we are going to experience over the next 3, 6 (and maybe even 12 months), that are going to make us even more money, as we are going to get bargains.  And by bargains, I don’t mean the wrong properties in the wrong location going cheap, I mean quality properties that outperform in the hot market times and don’t fall much as all in the soft markets, yet they can be picked up below what I would consider their fair value in soft market times like what’s in front of us in the next short term period.   That’s why we are talking to all our investor clients right now and preparing them to re-enter the market, as these windows of opportunity don’t come around too often when competition is low, great buying opportunities emerge – you just need to know where to look and what to buy………..and that’s what we do full time here at Empower Wealth!

Remember, knowledge is empowering – if you act on it!

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