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Ben Kingsley Blog post by Ben Kingsley

Will Property Prices keep Rising? – A 38 years analysis

One of the biggest questions I get asked by the ‘non-believers’ and ‘sceptics’ regarding property values is, will property prices keep rising?

As a property analyst and qualified property investment advisor it’s my full time job to analyse and evaluate the market in terms of historical performance and even more importantly to determine what I believe will happen to values in the future – my clients’ futures rely on what advice I give them so the burden of responsibility is certainly not lost on me and nor is the privilege to be entrusted to help them achieve financial independence. That’s why I jump at the chance to answer this question whenever I can and I thought it would also make for an interesting article…..

So I have written this two part articles where this month I’m going to focus on historical performance and next month I’m going to focus on why I’m confident property in general will increase in value and even more importantly why some areas will outperform others.

To illustrate a snippet of my work I’m going to use a sample of 3 suburbs: Middle Park, Yarraville and Melton and I’m going to assess them using the most reliable median value data available in terms of measuring actual values.  The Government department of the Valuer General, which receives record of every property transaction registered through the lands titles office and this data has been extensively recorded since 1974.  With this in hand, we are going to review these suburbs from 1974 until the latest reading of full year data supplied by the Valuer General – December 2012.

 

In 1974 the median house values for these suburbs were:

Middle Park: $24,000      Yarraville: $20,250            Melton: $23,000

 

Fast forward to December 2012 and the median house values for these suburbs are:

Middle Park: $1,426,000   Yarraville: $608,000       Melton: $250,000

 

Those of you who are familiar to Melbourne will know that Middle Park is a wealthy area and Yarraville is middle class, but starting to move to a more upper class status and Melton is a fast growing outer metro suburb on the city fringe which is more working class

 

In the past 38 years let’s compare the percentage change in values:

Middle Park: 5,841%                     Yarraville: 2,902%                             Melton: 987%

 

And the compounding growth returns on a per annum basis are:

Middle Park: 11.4% p.a                  Yarraville: 9.6% p.a                          Melton: 6.7% p.a

 

When you study these suburbs on a macro level it is interesting to note that Melton in fact had a higher median house price in 1974 than Yarraville and were very close to Middle Park.

In next month’s article I’m going to explain what led to one suburb outperforming the other suburbs by so much and why these factors are going to be what drive future values going forward.

This article focuses on the study of time and property value performances that have been achieved.  Over a 38 year period each suburb’s property values increased, some more than others which is why getting the suburb or area right is so important. However, if you bought in Melton back in 1974 and you got your 6.7% growth on top of a potential yearly rental of say 4%, your overall yearly returns would have been in excess of 10% gross.  So I would think that is a pretty nice return, considering the average superannuation fund returns about 6-7% p.a

Of course the returns on the better locations are even more pleasing and in Middle Park’s case, they are dazzling – double digit capital value increases for over 38 years plus rental yields around 4% p.a or more!

Impressive to say the least, especially when you put in the perspectives of global and local economic events. Let me highlight a couple of them.

–          Global Oil crisis in the 70’s
–          Floating of the Aussie dollar early 80’s
–          Global Stock market Crash of ‘87
–          Recession we had to have early 90’s
–          Oil wars in the Middle East
–          GST introduced 2000
–          Dot.Com Bubble 2001
–          Terrorism Attacks Sept 2001
–          Global Financial Crisis – 2008-09

Yet property prices have gone on their merry way to higher levels, even with the doomsayers predicting crashes and bubbles many hundreds of times throughout the past 38 years.

No one should just go into investing in property based on past performance alone, but given the scale and size of some these events over the past 40 years or so, history does give us a good understanding of things and should provide our mindsets with some confidence about the future.

I look forward to sharing next month’s installment as I explain what will be the catalyst for ongoing growth and outperforming growth in the future

Until then remember Knowledge is empowering if you act on it.

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