Why dips in the property market shouldn’t discourage long-term investors
Residential property prices in Sydney and Melbourne have fallen in the past 12 months. Data shows a 6.5 per cent drop in Sydney and a 3.2 per cent drop in Melbourne in the year to September 2018, and economists and market commentators predict further falls.
But you need to put these falls into context.
In Sydney between 2012 and 2017, house prices went up by 85 per cent. People who bought at least five years ago will see gains regardless.
Time in the market, rather than timing the market, remains a critical factor for successful property investing, and a look at long-terms trends of the Australian property market provides some perspective.
A long term view pays off
”20 years to a lifetime” is a good definition of long-term and its great for investors to “get in when they’re young” and hold on.
People often say 10 years, but you’ve really got to think generationally.
History has shown that if you want to get the power of compounding, you’ve got to think beyond 10 to 15 years.
Investors should build a portfolio rather than buying and selling.
Property is not something people should be dipping into and out of to make a quick profit. House prices go in cycles, and prices do fall sometimes, it happens.
People who are buying property as an investment should be looking to hold that property for a number of years. The transaction costs make it difficult to make a profit in a short time frame.
While past performance is not an indicator of future outcomes, there is compelling evidence for investing in property over the long term.
Different markets move at different rates
Analysis of property prices in Australian capital cities since the early 1990s shows that while cities don’t all move in the same direction all the time, in 18 of the past 25 years at least one city had double-digit price growth.
For those feeling a bit despondent about the negative headlines and the fact that Sydney and Melbourne are not booming, it’s all about looking elsewhere.
History and analysis shows us that somewhere will be showing growth.
It’s important for investors to understand there isn’t a single property market in Australia.
So rather than asking, Is now a good time to buy? Ask, Where is a good place to buy for growth?”
If you bought into Sydney or Melbourne five years ago, you’d now have quite a bit of equity, so you hold that property and use the equity to buy elsewhere.
Let's remind investors the market has been through “rough patches” in the past.
There were rough patches in the 1930s into WWII, also around the mid-1970s and 1980s when inflation was a lot higher and weighed on property, but over a long period, like the share market, property helps to grow wealth.
I would expect shares and property will continue to have similar long-term returns notwithstanding this current volatility.