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Ben Kingsley Blog post by Ben Kingsley

Property Values – Where to from Here?

Avid readers of my commentary will know that I am a buy and hold investor, opting for long term passive income and capital growth. It’s this methodology that suits most of the strategies we design for our clients at Empower Wealth.

Furthermore our investment analysis has over-weighting towards incomes as a core growth driver for property values. This over-weighting has materialised based on historical analysis, referencing long term property value growth from the early 1970’s until today. It’s this period in history that is different from previous periods as household went from single incomes to 1 full time, one part time, then to today were most household have two full time workers.

This change had a significant impact on disposable income and from a property point of view on the ability for households to borrow a greater home loan amount, ensuring values increased as they did. For the record based on Valuer General Data from 1974 until December 2010, the Melbourne Median house price has increase at 8.7% p.a ($25,500 to $515,000). At our last Property Investment Forum, we modeled the expected growth of a property value, as part of a wealth creation projection we demonstrated on the night. This example used the illustration of a continuing trend of 7% p.a in compounding growth, which given the power of compound would mean that these property values will eventually reach a multi-million dollar price tag over the next 20 years.

This result naturally prompted a question from the audience about the likelihood of this outcome continuing. The reply I gave related to the historical reference of growth since double household incomes became the ‘normal’.

In this year’s federal budget, treasury forecasted wage growth of 4%. Now that is half of the long term growth rates of property values, so with affordability now at most mortgage belt holders limits, it’s fair to say that values in locations where mortgage holders are the majority of the market – price/value pressure will force values lower.
In other areas where incomes grow higher than the average and demand remains high – these locations will actually buck the trend and will increase in value. The question is which locations?

Fortunately for our clients, we are confident we know these locations!

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