What Bubble?

Posted by Daniel Joseph

Seventy per cent of Australians think the property market is either in, or entering, a property bubble, according to a recent survey by the NSW division of the Australian Property Institute. It’s easy to feel somewhat daunted when you read headlines like ‘Will there be an Australian property crash?’ (Yahoo7news), especially when you don’t view the world through the lenses of research and education.

Now, my wife is one of those 70 per cent. With every headline and A Current Affair fear campaign came a call to sell our home in Sydney’s north-west before the bubble burst. Had we heeded those warnings, we would have missed out on a 30 per cent capital gain. The moral: be patient, do your research and, as hard is it may be, take what you hear in the media with a grain of salt. In most cases, the role of the media is (unfortunately) selling the story as opposed to educating readers.

Here are the facts: Australian property, with the exception of resource dominated towns, has never experienced price movement that you’d liken to a bursting bubble. Still, nearly three quarters of Australians think that we’re in a housing bubble. Are you one of them? If you are, this message is for you: the largest reduction in prices for our capital city property markets over the last couple of decades has been 5 per cent (that’s based on an index that combines prices in all our capitals). The share market is a different story; the GFC wiped away half the value of the ASX 200 in a matter of months in a bursting bubble, the effects of which continue to be felt today. That doesn’t mean you shouldn’t invest in shares. Any balanced portfolio should include a combination of the more liquid shares and the relative stability of the less liquid real property. ?

Fortunately for Australian property investors, our capital city markets often don’t move together (they are not perfectly correlated for all you statisticians). Just because Sydney has approached the peak of its cycle and affordability continues to be strained, it doesn’t mean that opportunities don’t exist in one of our other capital cities. At this point those markets are Melbourne and Brisbane, but we continue to be on the front foot when it comes to isolating the next property opportunities.

Next time you read a headline warning of the impending doom of the bursting property bubble, remember that research and history paints a vastly different picture of events.

Posted by Daniel Joseph, on 17th Nov 2015