When it comes to investing in property, trying to time a purchase to maximise a potential future profit over the shorter term is incredibly difficult. This applies equally to investing in a property that you will call your home or one you intend to rent out.
When investing, taking a short-term view can be problematic due to the difficulty in picking when prices have reached their bottom or their peak. We never have the benefit of capitalising on hindsight.
A recent report by Property Investment Professionals Australia (PIPA) examined the change in median price in Australian capital cities over a longer term.
In Perth from 2003 to 2018, prices increased by 106 per cent, performing better than Sydney, Brisbane, Adelaide and Canberra.
However, if those 15 years are broken into five-year periods then Perth prices improved 85 per cent from 2003 to 2008 and 23 per cent from 2008 to 2013, then declined nine per cent from 2013 to 2018.
The PIPA report then goes on to consider if an investor had a $400,000 house in Sydney and then sold it and re-invested every five years since 2003 in a different capital city around the country.
If the investor chose the city to invest in that performed the worst for each of the three five-year periods, they would be out of pocket approximately $140,000. However, if they had left their money in Perth, for example, their investment would have grown (on average) to $824,000.
Volatility is usually associated with the share market, which has seen its fair share of recent ups and downs. As we all know, the last five years in the Perth property market has also shown a level of volatility after the downturn in the resources industry, however, indicators for potential positive growth are starting to increase.
A recent CoreLogic report revealed the number of new sales listings for Perth declined 17.5 per cent in the 12 months to July 30.
The number of total listings are now lower than they have been at this time of year each year since 2015, down 17 per cent from 2016 and 7.6 per cent on last year.
This shows supply is beginning to trend down towards the levels where the market last saw increasing values from 2012 to 2014.
When considering apartment sales listings, they have dropped from 1946 in 2014 to 1074 in June 2019. That’s a fall of 45 per cent in five years. In the last 12 months, apartment listings have fallen 13 per cent alone.
In addition, Perth rental vacancy and yields are improving, decreasing to a three per cent vacancy for mid-2019.
Beyond this, a number of large resource projects and investments in our state are beginning to take shape, with the potential for additional positive flow-through effects into the wider economy.
Like most investment, investing in property is usually best pursued through the longer, not shorter term. Trying to time the bottom of the market is impossible, so this should not be the aim of a long-term investor.
Benefits generally accrue when investments are prudently held for the longer term, and property is no different.
Ronald Chan, Weekend West, Perth, Page 12, 14 September 2019
Ronald Chan, The West Australian, 16 September 2019