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Ben Kingsley Blog post by Ben Kingsley

Property Prices Rise Again

December median prices are in and guess what; values are up again across the country.  In fact the Oct – Dec quarter saw some really big percentage increases in some states and their respective suburbs.  For those of you who have been reading our newsletters for the past couple of years, you know my position on this; I’ve been saying certain property makes for an excellent investment whether for owner occupier or investment purposes. For those new to our newsletter, I want to highlight a couple of points:

Firstly, quarterly figures in isolation are not worth a lot to me, because next quarter they could be down.  This is based on volume of sales or the quality of the stock being sold or a general slowdown in the market.  Take the ‘Blue Chip’ suburb of Albert Park, in Melbourne’s inner city ring.  Papers in January 2009 had front page news of property prices down by 25% in Albert Park and other ‘Blue Chip’ Suburbs.  Well, this month Albert Park recorded an increase in median value of 29% for the quarter, which highlights the short term volatility of values, because of the varied stock on offer etc.

Long term results are what superior property is all about.  When we look at Albert Park over the long term from its median value in 1974 of $37,000 to its current present value of $1,200,000, you get a far better picture of what sensible long term investing is all about.  This is a fantastic 3143% capital growth increase and it represents a compounding return of 13% p.a.  Add a 4-5% rental return and compare that to any superannuation return since the superannuation guarantee was introduced in July 1992.  So I recommend you compare returns of 17 – 18% per annum against your super returns, which over the long term are more than likely less than 10% per annum.  Plus you don’t get the benefit of leveraging in typical superannuation schemes. – There I go again with my bias towards property as a superior investment or super – sorry, but the numbers are very compelling. Pity most financial Planners are not allowed to recommend direct residential property as an investment product.  They should change their names from Financial Planners to Investment Advisor for Share Investments (Personal opinion only).

 

Median pricing should only be used as a guide or starting point.

None of us can afford to buy every property in a location, so in real terms the median doesn’t mean as much as say the value of the actual property being purchased and the comparable properties within the localised area that help you establish fair market value for your property.  (I.e. You are buying a property for $500,000, but the median is $750,000) doesn’t mean your property is now worth $750,000.

Therefore to get a superior property result, the localised area in which your property is located, (say within 1km of your property), is more important than all the property values in the overall suburb or neighbouring suburbs. The quality, uniqueness and scarcity of your property, plus your land size are very important to you in achieving an ‘outperform’ result in your local area and as a measure of investment returns against the overall property market.

2010 is being reported as another strong year for property, and based on feedback from my Melbourne and Sydney clients who are actively looking already in January, the competition is strong for quality properties, so you can expect another solid year if buying well.

For those of us holding significant property investments it looks like once again we’ll have a year where our passive investments provide more wealth to us than our working incomes do.

Those of you sitting on the fence, thinking property cannot continue to go up in value forever, re-read the Albert Park example and take a long term view (15 – 30 years).  Imagine that your half a million dollar property will be worth over $1 million dollars in 7 to 10 years if long term price growth continues. Given that over the past 35 years in Melbourne the median has grown by 13%, through wars, oil crisis, 19% interest rates, inflation levels of 10%+, stock market crashes and the second worst global financial meltdown in history it is likely that this trend will continue.

Get off the fence, get educated and give yourself a chance to retire sooner and/or wealthier………….and provide yourself a better standing of living in retirement.  Adopt the attitude – ‘If it is to be, it’s up to me’.

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