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Ben Kingsley Blog post by Ben Kingsley

Property Prices – Where to from here?

Those of us in the Melbourne and Sydney markets are seeing property values grow at an astonishing rate. So much so that at a very near point in time, they may be overvalued.

I know the first question that’s coming to mind—”when will this be?” As those of you looking to get into the markets are thinking, I’ll just wait until the right time hits and then get in when the values go down right?

Well the only problem with this strategy is that no one is really sure if and when this will be and the most important question, how much these values may fall.

Currently we have perfect conditions for property values to skyrocket. Growing economy, low unemployment, lower than average interest rates, shortage of property for sale and high rent. So good capital and yield returns = exploding prices

Prices may retreat from theses peaks, but I doubt very much they will retreat too far back. If values rise another 10% in the next 12 months for well located properties they may only come back 5% for the short term, so there should still be buying opportunities in every city market currently, research is the key.

For those of you buying investment properties, especially in newer areas, I’m sorry but your values are going to come back a lot more than 5% in my view, as interest rates start hitting 7-7.50% in this correction phase. That’s because low demand for these locations will occur due to short term affordability issues constraining demand.

Timing the market is near impossible, so take this idea on as a more sensible strategy. 

Melbourne median house prices have grown on average by 8.5%p.a over the past 35 years, so if you have a long term hold strategy, then sure, some years will perform better than others, like last year and this year, and some will not, but an 8.5% or greater for the better performing locations will make you very wealthy over the long term—that’s for sure!

So get in when you can afford it for the long term and enjoy the ride without the worry about what’s going to happen today or tomorrow— it’s the compounding and rental returns performance of the next 10-35 years, which will make you retire a lot wealthier than those still waiting for the right time!

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