Property Update10 lessons I learned from past property downturns that we can use in 2022
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What’s ahead for our property markets in 2022?
Clearly, there will be continuing issues with Covid 19 affecting our local economy, and the socio-political problems that plagued the world last year plagued the world last year are unlikely to disappear.
Yet most analysts and economists agree that our property markets should continue to perform strongly in 2022.
Sure property values grew significantly over the last year, in fact, house prices are up 22% around Australia over the year, and even more in certain locations.
But let’s put this in context…
Australia’s property markets had been sluggish for the previous three years.
This started with the APRA-induced credit squeeze prior to the Haynes Royal Commission into Banking in 2018, followed by the fright of a Labour government changing property tax laws in 2019, and finally the Coronavirus induced property market lockdowns of 2020.
Then in October 2020, our property markets started moving out of their downturn phase driven by falling interest rates, pent-up demand, and rising consumer confidence that we were getting through our Covid related challenges.
So what’s ahead for property in 2022 and beyond?
There are clearly signs that some of the heat is coming out of our property markets and while there are still many active buyers, for the first time since the pandemic began, the strong ramp-up in new listing says given them more choices.
While price growth has peaked, I still see property values rising throughout 2022, but eventually, this cycle will end, so I’d like to look back and share 10 lessons I learned from previous property downturns that could be helpful in 2022.
1. Property booms don’t last forever
Whether it’s property, shares, or bitcoins — booms just don’t last forever, neither do downturns.
The thing is, downturns are just one part of a cycle, so they will always end at some point.
Every boom sets us up for the next downturn, just as every flat period provides opportunities to get set for the next upturn.
The trick is to maximise your upside while preparing yourself for the next downturn.
2. Stick to your strategy
Don’t change your long-term investment strategy because of short-term factors.
Look for what’s always worked, rather than what’s working now.
Your long-term wealth will be created by the capital growth of your property portfolio increasing your asset base.
Sure, cash flow is important – it will keep you in the game.
But it’s capital growth that will get you out of the rat race.
Let’s be honest, almost anyone could have made money during the boom years as the market covered up any mistakes.
But as Warren Buffet says: “You only find out who is swimming naked when the tide goes out.”
In other words, if you’re not following a strategy that works in all market conditions you will be caught naked when the market changes and it will – because as always the good times we’ll experience in the next few years will also come to an end.
3. Get rich quick = get poor quick
Successful property investment takes time.
Be wary because, just like at the beginning of every other property cycle, there’s a new breed of spruiker out there looking to lure the uneducated into parting with their money by offering them a shortcut to riches.
4. Take a long-term perspective
Don’t let emotions drive your investment decisions.
Remember in early 2020, during the peak of the scare regarding Covid19, when the fear started to rear its head.
People who had made poor investment decisions, or those who bought near the market peak, started to panic.
Then, as the market picked up, FOBE (the fear of buying early) kept home buyers and investors out of the market, they were worried that property prices could still drop further.
Then throughout 2021 as it became clear that our markets are on the move again, FOMO (the fear of missing out) set in – many homebuyers and property investors were concerned that the market will take off before they get a foothold.
Let’s face it: emotions of any kind are not a good idea when investing.
The secret is to keep your eye on the long-term horizon and not worry about any short-term vagaries of the market, because they will pass.
5. Property investment is a game of finance with some houses thrown in the middle
Strategic investors don’t only buy real estate — they buy themselves time by having the correct finance structures in place including cash flow buffers to ride through the cycle.
6. Invest in locations with a future, not a past
Since the bulk of your property’s performance will be determined by its location, rather than looking for somewhere cheap to buy, find a location where local economic growth will lead to jobs growth, wages growth, and population growth.
Look for a suburb where the local demographic can afford to and will be willing to pay for their properties because they earn high disposable incomes.
And in these post-Covid times, locations that will outperform will be desirable, aspirational suburbs that offer mobility and proximity.
By proximity I mean the ability to work, live and play all within 20 minutes’ reach will be the new gold standard desirable lifestyle.
It seems that in our new “Covid Normal” world, people love the thought that most of the things needed for a good life are within a short public transport trip, bike ride or walk from home.
Things such as shopping, business services, education, community facilities, recreational and sporting resources, and some jobs.
We’re in for a 2-tier property market moving forward.
While most property markets around Australia have performed strongly so far this cycle (other than the inner city of high-rise apartment market), it’s important to realise that moving forward we are likely to have a 2-tier property market.
In other words, not all property markets will continue growing strongly moving forward.
Properties located in the inner and middle-ring suburbs, particularly in gentrifying locations, will outperform cheaper properties in the outer suburbs.
While the outer suburban and more affordable end of the markets have performed strongly so far, affordability is now becoming an issue as the locals have had minimum little wages growth of the time when property prices have boomed.
In these locations, the residents don’t have more money in their pay packet to pay the higher prices the properties are now achieving.
More than that, Covid19 has adversely affected low-income earners to a greater extent than middle and high-income earners who are likely to recover their income back to pre-pandemic levels more quickly, while many have not been hit at all.
Also, high-rise apartment towers in our CBDs, which were already suffering from the adverse publicity of structural problems prior to Covid19, will now become the slums of the future as they are shunned by homeowners and investors.
And as we start to emerge from our Covid Cocoons there will be a flight to quality properties and an increased emphasis on livability.
As their priorities change, some buyers will be willing to pay a little more for properties with “pandemic appeal” and a little more space and security, but it won’t be just the property itself that will need to meet these newly evolved needs – a “liveable” location will play a big part too.
To many, liveability will mean a combination of:
Proximity – to things like parks, shops, amenities, and good schools
Mobility – access to good public transport (even though this may be less important moving forward) or a good road system
Access to jobs
7. You know less than you think you know
A healthy ego can be a good signal of future success.
However, an over-inflated ego will usually mean you end up worse off than when you started.
If you’re the smartest person in your team you’re in trouble, so recognise that mentors and experts can help teach you the things that you don’t even know that you don’t know.
8. Don’t mistake money for wealth
A big bank balance means someone’s rich, right?
Well, no, it doesn’t.
Many high-income earners live from one pay to another — and never have enough money “leftover” to invest in income-producing assets.
The truly wealthy not only have a capital growth portfolio behind them, but they have also learned that money is not wealth.
That’s why they make time for their family and their health, and they give back to society and to their local communities because that is where true happiness lies.
And these lessons were brought home clearly to many of us as we were huddled in our Coronavirus cocoons.
9. The sky isn’t falling
When the good times seemingly turn bad the property pessimists and doomsayers come to the fore.
These “commentators” predict the end of the financial world suggesting we should all sell up and hide under a rock.
On the other hand, sophisticated investors ignore the white noise because they are concentrating on the long-term, where the view is calm and clear.
Think about it… How often do we have to hear “this is the end of the world as we know it” until we realise this is not the end of the world as we know it?
10. Opportunity is knocking
When the opportunity arises, strike.
Remember Warren Buffet’s words: “Be fearful when others are greedy and greedy when others are fearful.”
Sure it’s difficult to take action when others around you are talking doom and gloom, but it is during downturns that lifetime wealth is made.
So while the best time to buy a property may have been 20 years ago, the second-best time to set yourself up for financial independence and buy investment great property is right now.
But don’t expect a bargain, as well located investment-grade properties are in strong demand as, Like after every downturn, there is now a flight to quality my buyers.
However, that property that seems reasonably expensive today will look like a bargain when you look back in a decade.
The Bottom Line:
Strategic investors don’t really care too much about market phases.
Instead, they concentrate on growing their portfolios and investing in the right type of properties, whenever it suits their finance, their strategy, and their long-term goals.
Over 2021 there was been a palpable change in market sentiment and this was reflected in strong buyer activity at a time when there is a little good stock on the market.
Moving forward, in 2022 there is likely to be the greatest selection of properties available, so don’t let FOMO allow you to make bad decisions.
Only buy A-grade homes or investment-grade properties.
You can’t expect to get wealth producing rates of returns from secondary assets
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Property Update10 lessons I learned from past property downturns that we can use in 2022
[ad_1]
Please use the menu below to navigate to any article section:
What’s ahead for our property markets in 2022?
Clearly, there will be continuing issues with Covid 19 affecting our local economy, and the socio-political problems that plagued the world last year plagued the world last year are unlikely to disappear.
Yet most analysts and economists agree that our property markets should continue to perform strongly in 2022.
Sure property values grew significantly over the last year, in fact, house prices are up 22% around Australia over the year, and even more in certain locations.
But let’s put this in context…
Australia’s property markets had been sluggish for the previous three years.
This started with the APRA-induced credit squeeze prior to the Haynes Royal Commission into Banking in 2018, followed by the fright of a Labour government changing property tax laws in 2019, and finally the Coronavirus induced property market lockdowns of 2020.
Then in October 2020, our property markets started moving out of their downturn phase driven by falling interest rates, pent-up demand, and rising consumer confidence that we were getting through our Covid related challenges.
So what’s ahead for property in 2022 and beyond?
There are clearly signs that some of the heat is coming out of our property markets and while there are still many active buyers, for the first time since the pandemic began, the strong ramp-up in new listing says given them more choices.
While price growth has peaked, I still see property values rising throughout 2022, but eventually, this cycle will end, so I’d like to look back and share 10 lessons I learned from previous property downturns that could be helpful in 2022.
1. Property booms don’t last forever
Whether it’s property, shares, or bitcoins — booms just don’t last forever, neither do downturns.
The thing is, downturns are just one part of a cycle, so they will always end at some point.
Every boom sets us up for the next downturn, just as every flat period provides opportunities to get set for the next upturn.
The trick is to maximise your upside while preparing yourself for the next downturn.
2. Stick to your strategy
Don’t change your long-term investment strategy because of short-term factors.
Look for what’s always worked, rather than what’s working now.
Your long-term wealth will be created by the capital growth of your property portfolio increasing your asset base.
Sure, cash flow is important – it will keep you in the game.
But it’s capital growth that will get you out of the rat race.
Let’s be honest, almost anyone could have made money during the boom years as the market covered up any mistakes.
But as Warren Buffet says: “You only find out who is swimming naked when the tide goes out.”
In other words, if you’re not following a strategy that works in all market conditions you will be caught naked when the market changes and it will – because as always the good times we’ll experience in the next few years will also come to an end.
3. Get rich quick = get poor quick
Successful property investment takes time.
Be wary because, just like at the beginning of every other property cycle, there’s a new breed of spruiker out there looking to lure the uneducated into parting with their money by offering them a shortcut to riches.
Don’t let emotions drive your investment decisions.
Remember in early 2020, during the peak of the scare regarding Covid19, when the fear started to rear its head.
People who had made poor investment decisions, or those who bought near the market peak, started to panic.
Then, as the market picked up, FOBE (the fear of buying early) kept home buyers and investors out of the market, they were worried that property prices could still drop further.
Then throughout 2021 as it became clear that our markets are on the move again, FOMO (the fear of missing out) set in – many homebuyers and property investors were concerned that the market will take off before they get a foothold.
Let’s face it: emotions of any kind are not a good idea when investing.
The secret is to keep your eye on the long-term horizon and not worry about any short-term vagaries of the market, because they will pass.
5. Property investment is a game of finance with some houses thrown in the middle
Strategic investors don’t only buy real estate — they buy themselves time by having the correct finance structures in place including cash flow buffers to ride through the cycle.
6. Invest in locations with a future, not a past
Since the bulk of your property’s performance will be determined by its location, rather than looking for somewhere cheap to buy, find a location where local economic growth will lead to jobs growth, wages growth, and population growth.
Look for a suburb where the local demographic can afford to and will be willing to pay for their properties because they earn high disposable incomes.
And in these post-Covid times, locations that will outperform will be desirable, aspirational suburbs that offer mobility and proximity.
By proximity I mean the ability to work, live and play all within 20 minutes’ reach will be the new gold standard desirable lifestyle.
It seems that in our new “Covid Normal” world, people love the thought that most of the things needed for a good life are within a short public transport trip, bike ride or walk from home.
Things such as shopping, business services, education, community facilities, recreational and sporting resources, and some jobs.
We’re in for a 2-tier property market moving forward.
While most property markets around Australia have performed strongly so far this cycle (other than the inner city of high-rise apartment market), it’s important to realise that moving forward we are likely to have a 2-tier property market.
In other words, not all property markets will continue growing strongly moving forward.
Properties located in the inner and middle-ring suburbs, particularly in gentrifying locations, will outperform cheaper properties in the outer suburbs.
While the outer suburban and more affordable end of the markets have performed strongly so far, affordability is now becoming an issue as the locals have had minimum little wages growth of the time when property prices have boomed.
In these locations, the residents don’t have more money in their pay packet to pay the higher prices the properties are now achieving.
More than that, Covid19 has adversely affected low-income earners to a greater extent than middle and high-income earners who are likely to recover their income back to pre-pandemic levels more quickly, while many have not been hit at all.
Also, high-rise apartment towers in our CBDs, which were already suffering from the adverse publicity of structural problems prior to Covid19, will now become the slums of the future as they are shunned by homeowners and investors.
And as we start to emerge from our Covid Cocoons there will be a flight to quality properties and an increased emphasis on livability.
As their priorities change, some buyers will be willing to pay a little more for properties with “pandemic appeal” and a little more space and security, but it won’t be just the property itself that will need to meet these newly evolved needs – a “liveable” location will play a big part too.
To many, liveability will mean a combination of:
7. You know less than you think you know
A healthy ego can be a good signal of future success.
However, an over-inflated ego will usually mean you end up worse off than when you started.
If you’re the smartest person in your team you’re in trouble, so recognise that mentors and experts can help teach you the things that you don’t even know that you don’t know.
8. Don’t mistake money for wealth
A big bank balance means someone’s rich, right?
Many high-income earners live from one pay to another — and never have enough money “leftover” to invest in income-producing assets.
The truly wealthy not only have a capital growth portfolio behind them, but they have also learned that money is not wealth.
That’s why they make time for their family and their health, and they give back to society and to their local communities because that is where true happiness lies.
And these lessons were brought home clearly to many of us as we were huddled in our Coronavirus cocoons.
9. The sky isn’t falling
When the good times seemingly turn bad the property pessimists and doomsayers come to the fore.
These “commentators” predict the end of the financial world suggesting we should all sell up and hide under a rock.
On the other hand, sophisticated investors ignore the white noise because they are concentrating on the long-term, where the view is calm and clear.
Think about it… How often do we have to hear “this is the end of the world as we know it” until we realise this is not the end of the world as we know it?
When the opportunity arises, strike.
Remember Warren Buffet’s words: “Be fearful when others are greedy and greedy when others are fearful.”
Sure it’s difficult to take action when others around you are talking doom and gloom, but it is during downturns that lifetime wealth is made.
So while the best time to buy a property may have been 20 years ago, the second-best time to set yourself up for financial independence and buy investment great property is right now.
But don’t expect a bargain, as well located investment-grade properties are in strong demand as, Like after every downturn, there is now a flight to quality my buyers.
However, that property that seems reasonably expensive today will look like a bargain when you look back in a decade.
The Bottom Line:
Strategic investors don’t really care too much about market phases.
Instead, they concentrate on growing their portfolios and investing in the right type of properties, whenever it suits their finance, their strategy, and their long-term goals.
Over 2021 there was been a palpable change in market sentiment and this was reflected in strong buyer activity at a time when there is a little good stock on the market.
Moving forward, in 2022 there is likely to be the greatest selection of properties available, so don’t let FOMO allow you to make bad decisions.
Only buy A-grade homes or investment-grade properties.
You can’t expect to get wealth producing rates of returns from secondary assets
ALSO READ: I would have been a better property investor if I knew these 12 things earlier in life
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