After an extended Christmas break, I returned to what appeared to be a different market: pessimism dominated the news, property markets were tipped to slow, the price of oil had dropped to below $30 a barrel, and the Chinese equity market was deliberately halted twice in an attempt to stop a free fall.
Needless to say it wasn’t the most inspiring welcome back but, after briefly considering taking a few months off until the turbulence settled, I decided to take the time to analyse the various claims in more detail. Here’s what you need to keep in mind to navigate the media minefield:
- Property markets move in cycles. More often than not, Australian investors don’t use the property cycle to their advantage; instead, they invest in high demand markets, opting to be one of the many sheep instead of the shepherd. Why? It takes more courage and foresight to be a shepherd than it does to be a sheep. For an empirical analysis search for ‘know the cycle’ in the research blog. A cooling Sydney market doesn’t mean there aren’t opportunities elsewhere in Australia. I’ll go through our picks for 2016 in the coming weeks.
- Focus on the fundamentals. We all need somewhere to live. As such, property remains far more insulated from economic volatility than the share market. Our job is to isolate those areas with attributes likely to support population growth in various market conditions. These attributes come under the categories of population and demographics, economics and employment, infrastructure investment and supply and demand.
- There hasn’t been a property crash in almost 130 years (since 1889), and yet it wouldn’t be hard to find 130 headlines that warned of an impending crash in the last six months alone! It seems as though some in the media have no qualms with being consistently wrong.
- Perspective required! It’s cheaper to own property now than it was at almost any point in the past decade, yet investors are alarmed by a 50 basis point increase in rates from historical lows. Does no one remember that interest rates were 9 per cent just before the GFC? If interest rates at 6 or 6.5 per cent lead to a cold sweat and hyperventilation, then property investment/any investment isn’t right for you – so buy government bonds. Small caveat: the interbank cash rate futures contract curve indicates that rates are likely to remain at historical lows for the foreseeable future.
Perspective is key. Get educated, establish a professional support network and take action. Don’t let negative sentiment stand in the way of your aspirations.