Property: the end of the romance?
This was the headline on the front page of the investor section in one of last weekend’s Sunday newspapers and as you 
can imagine, I just had to read the article to find out what they had to say.
The article claimed that property was no longer an attractive investment because:
1. for the next 4 months, people over 50 years of age could sell their high value properties and put the proceeds into their superannuation funds to minimise their tax. The article also pointed out that at the moment there were a lot of such types of properties on the market.
2. there was a possibility of an interest rate rise,
3. at the moment, because we are in a post-boom period, property values are high while rental returns are quite low in many areas. The article pointed out that some property investors were struggling with rental returns of 2 and 3 per cent a year, while sharemarket returns were potentially higher.
4. property investors often have to pay stamp duty and land tax while no equivalent tax is levied on equities.
Towards the end of the article there was a small paragraph which pointed out that rents were expected to rise “significantly” and that the Reserve Bank of Australia had stated this was necessary to make property investment viable. (I definitely agree with that statement and that is already happening in the market place right now, so you don’t have to be a genius to work that one out.)
The article also featured a picture of the pretty young journalist who had apparently penned this “well informed” assessment of the property market and without doing any research, it is my guess that she would be in her late twenties or early thirties and is basing her statements on what will catch a reader’s eyes rather than on her experience as an investor.
While everything she says in the article is true, the headline is designed to cause the reader concern if they are already a property investor or are thinking of becoming one.
The factors which the article uses to argue that there is a “property exodus” at the moment, are all short term variations in an economic cycle and which repeat themselves again and again. (except for the superannuation issue.)
A smart property investor realises that real estate is a long-term investment and that as we go through various economic cycles, market conditions will change and that is not a good reason to panic and sell out. It is also not a good reason to shun property as an investment vehicle.
Smart investors, use this doom and gloom talk to help the “scaredy cats” (who believe these types of articles) to unload their properties and snap up some good deals.
If you focus on short term “blips” in the market, you will find yourself well and truly confused and you will spend your time chasing “the latest great idea.”
Do you see Warren Buffett rearranging his massive share portfolio every time an article appears with a critical comment about the stockmarket in general or one of the companies he invests in? No way!
Does Donald Trump sell his property portfolio because of media articles proclaiming doom and gloom? Not at all! Quite to the contrary, he takes advantage of the market situation to buy more.
To be a successful investor, you have to lake a long term view of things.
Around the time when my youngest daughter was born, there was a lot of turmoil in the world and Colonel Gadaffi from Libya was a thorn in the side of the USA and other western countries. It seemed as if we were headed for World War 3.
Even though I was overjoyed about the birth of Stephanie, I was going through a difficult time emotionally because I wasn’t fulfilled at work and the whole world looked like it was ‘turning to custard’.
The news was always focused on the latest crisis and the ongoing talk of doom and gloom made me feel like giving up hope. I felt despondent and often asked myself: “what’s the use of striving to get ahead and build wealth, when the world is headed into a downward spiral?”
That was more than 20 years ago.
Since then we’ve had stockmarket crashes, property corrections, oil crises, two invasions of Iraq, numerous terrorist attacks, threats of nuclear war, Y2K, global warming and countless other dramas and threats to our existence and/or prosperity.
How did the property market react?
Did it care?
Not really. Sure it had a few minor ups and downs along the way, but on average it increased threefold along the way.
Fortunately I overcame my personal despondency by participating in a series of personal development programmes. I changed the many attitudes and beliefs which were not serving me and moved on to tremendous success and fulfilment in business and wealth.
As I look back over this period of time with the benefit of hindsight, I have to say that the biggest lesson I learnt was: always keep your eye on the long-term direction of your investments and don’t be distracted by short-term variations.
I often hear people say things like: “but its different this time”.
While there will be situations that have a long term impact on your investment strategies, be sure not to be blown off course by short-term crises which have very little impact on the long term direction of the investment property market.
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Warm Regards,
Hans Jakobi - Australia's Wealth Coach