|
Understanding Property Seasons
By
Nick Lockart @ mrd
6th November
2009
“As long as the earth remains there will be seedtime and
harvest.” Understanding this truth is an important key to
success in your life; however, ignorance will cost
you.
Being ignorant of gravity does
not act as a shield to protect you from the effect of a fall…
equally understanding gravity is foundational to base jumpers,
who experience the adrenalin rush from jumping off cliffs and
bridges.
So it is with property
investing…
The global financial crisis (GFC)
brought much trouble to our property market. A lack of
confidence, driven by daily media reports of those “prophets of
doom” was more to blame than the GFC itself. All the same…
perception was “everything”.
From when we first began to hear
those words uttered… “Subprime” through to September 2008 (just
before the collapse of the US investment bank, Lehman Brothers)
my wife and I bought three new investment properties. People
all around were panicking, many selling property… but very few
were buying.
So why were
we?
Because we understand the seasons:
1. Massive record
immigration levels. Australia’s population was growing by about
350,000 a year and they will all need a place to
live.
2. The inability of most
developers to keep building. So many went broke, others
couldn’t get funding and the rest put any ‘not yet started’
projects on hold.
When we see factors restricting
new residential property construction we know that future
supply will be restricted. It’s pretty safe to say that
throughout the GFC the only new residential projects under
construction have been those which had received funding to
start before the crisis hit. Most of those are now completed
and very, very little else has commenced. Make NO MISTAKE… we
are heading fast into a supply vacuum and it will drive rents
high.
With interest rates now coming
off their historic lows and the boost to the first home owner’s
scheme coming to an end next month the above situation will be
exasperated. I am avoiding calling this “situation” a problem
because for those whose glass is half full (investment property
owners) it is actually an opportunity!
Our country will be home to
35,000,000 (that’s million) people by 2049. That is a 21
percent jump on what official figures were just two years ago.
With no new supply in the pipeline and banks unwilling to loan
developer’s construction funding… where will these people live?
What will this even greater imbalance to the supply/demand
ratio do to property values?
Why The Rental Market
Has Been Soft?
The Reserve Bank stimulated
the economy by reducing interest rates to 50 year lows. The
Federal Government stimulated the economy by encouraging
hundreds of thousands of people out of rental properties and
into their own homes. Today, we have many new home owners in
Australia because they could take advantage of record low
interest rates and the free cash the Government had on
offer.
Both these incentives are now
being reversed, however. Understand the seasons! The short term
immediate impact of the government’s stimulus is a rental glut
in some places. Rents have softened and we are finding longer
vacancies than we have ever experienced before. While this has
the potential to freak out some new investors, we need to be
ever mindful of the truth that “as long as the earth remains
there will be seedtime and harvest”.
Seasons
Property investors right now are experiencing a softer rental
market than was anticipated ahead of the GFC. However, this is
the unavoidable outcome (or harvest) brought about by the
(seedtime) stimulus of both the Government and the Reserve
Bank’s stimulus packages.
WARNING: Do not
confuse the seasons! For me to look at my softer rents, or even
the interest rate rises, and conclude that it was not the time
for sowing (investing) would be like a farmer looking at the
hot sun and concluding not to plant his crop; i.e. ignoring the
winter rains that were to soon fall.
Look beyond the immediate.
Today’s harvest is the fruit of yesterday’s seedtime. Look to
the harvest you desire tomorrow and ask “Is now the right time
to sow my seed”?
I take heart from the
predictability of the market and even in the face of current
short term diminished rental income; my glass is still half
full. I have enjoyed and continue to enjoy record low interest
rates and I have been able to afford to add to my property
portfolio ahead of what I believe will be a massive growth to
property values.
The stupidity of the hysterical
media cycle during the GFC is that the signs to the contrary
were already there:
• We had the massive population
growth.
• It was already apparent that
the supply of new dwellings was all but going to dry
up.
• Everyone needs a roof over
their head; as I continually say.
The glass that is half full is
the same glass that is half empty; it’s all about
attitude!
by Nick Lockart - 6th Nov 2006
Back to
Top
###
| 
