Residential property investment is popular with Australians: this popularity is based on the ‘urban myths’ that
- property prices increase consistently (that ‘you can’t go wrong with bricks and mortar’); and
- residential property prices are not volatile (as are share prices).
An article published by Research house CoreLogic RP Data1 in February 2016 was brought to our attention. Its title is ‘Property prices double every decade?’. The article is of interest to us from a couple of points of view –
- firstly, the report focuses on capital city data;
- secondly, it covers ten-year terms; and
- finally, it contains a graph that demonstrates that there is in fact, volatility in residential property prices.
As we were about to publish this article, CoreLogic released its January 2017 commentary on Capital City Residential Property prices. This report included reference to the change in prices for the 2016 calendar year. We have appended the latest commentary at the end of the February 2016 article, linked above.
Residential property investment:
– the capital city focus
Reflecting on the expression that there are –
- ‘lies, damn lies – and statistics’; and
- on the sceptical view that you can make statistics reflect any view you want to spin,
we are interested to see research data covering some of the ‘variants’ not covered in the article. Variants such as –
- does residential property investment in popular tourist areas perform similarly to those in the capital cities;
- which regional cities in the less tourist-oriented locations, perform similarly to capital cities;
- is there a significant difference in investment outcomes between styles of residential property; and
- is there a level of gearing used to acquire residential property that ‘almost certainly’ assures a successful investment outcome?
We acknowledge the table published by CoreLogic RP Data that showed the January 2017 prices change data. That data includes a row for non-capital city residential property investment value changes.
– the ten-year consideration
Property is a growth asset in investment terms. It is a high-risk asset (with characteristics described later in this post). Analysing the ten-year price movement of residential property values is consistent with this categorisation. As to whether it doubles every ten years may not be a universal outcome. Property – and shares (also risk assets) – performance evaluations need a seven- to ten-year term to prove themselves. Acquisition and disposal of these asset classes in shorter periods, are more speculative/ trading actions, than investments.
Testing a couple of ten-year periods within the timeframe of the first graph in the linked article reveals similar outcomes. Ten-year terms leading up to the GFC showed significantly better residential property investment performance than did any ten-year period that embraces the 2008 and 2009 years (at the depths of the GFC economic impacts). The ten-year periods to –
- January 2008 calculates to an approximate growth over the capital cities, of 159%;
- whilst the ten-years ended January 2012, calculates at around 84% growth.
– the volatility factor
The graph referenced above (from the linked article) only deals with property values. It doesn’t deal with the other uncertainties that accompany property investment (residential or otherwise), such as –
Irregularity/ uncertainty of rental income: consider –
-
- Unavailability of suitable tenants
- Tenants unable to pay their rent, but also
- The benefit of a regular income if all goes well
Property retention and maintenance/ upkeep costs: consider –
-
- Utility costs (Rates, water etc)/ Body Corporate fees and levies
- Insurances (landlord, property, public liability etc)
- Renovation and repairs (to maintain the property value as reflected in the graph)
- Interest on borrowings (which themselves can be volatile)
Property zoning changes: consider –
-
- The positive of a change to your advantage; as opposed to
- The negative of a new roadway nearby (or some other infrastructure that impedes the use of your particular property)
Taxation: consider –
-
- Advantages of the special property write-down deduction (for qualifying properties)
- Depreciation deduction; and
- Capital Gains Tax benefits.
The graph does show volatility in residential property values. Residential property prices impact the cashflow aspects of investment in this asset class. There is a degree of frustration in being ‘asset rich, but cashflow poor’.
Residential property investment: part of a diversified portfolio
Whether you are considered it as –
- a personal investment, or
- perhaps to be part of the investment portfolio of a self-managed superannuation fund (or other entity),
direct property should be a relevant portion only, of the portfolio – accompanied by a researched selection of assets that are –
- strategically blended to ensure that the
- long-term financial goals and objectives of the investor/ trustee,
are targeted to best effect.
ContinuumFP has published an article that details the features and characteristics of the primary investment asset classes. In the article ‘Investment Portfolio Diversification’ the investment risks of –
- cashflow,
- liquidity,
- term and
- other characteristics are presented.
It is a useful reminder that risk can be either/ both a negative and an opportunity. To benefit most from an investment portfolio, these asset class characteristics need to be understood and calculated in to investment decisions.
‘Investors Love Property’ is the title of another article in the ContinuumFP website article Library that expresses some thoughts on the inclusion of property in diversified investment portfolios. The message is consistent, that all of the characteristics of the asset under consideration, need to be calculated into the determination of what is/ is not included in the portfolio.
…and making the decision to invest
Continuum Financial Planners Pty Ltd team of experienced financial advisers is well positioned and credentialed to assist you in making the correct decision about embracing residential property as part of your investment portfolio. Our relationship with a range of professionals in the property investment area, place us well to coordinate the implementation of your investment decision – and to do so, reassuring you that the correct decision is being made.
To consult with one of our team, make an appointment, by
- phoning our office , on 07-34213456; or
- at your convenience, use the linked Book A Meeting facility.
CoreLogic is described on its website, as ‘…the leading provider of property data, analytics and related services to consumers, investors, real estate, mortgage, finance, banking, building services, insurance, developers, wealth management and government.’
(This article was originally posted by us in February 2017. We occasionally update/ refresh it, most recently in March 2025.)