Is Property A Risk-Free Asset?
Property may seem like a risk-free asset. If held for a long time, it will likely double in value every ten years (pending market conditions and economic outlooks). Recently released research from Corelogic suggests that this may be an assumption that could come back to bite you.
In the ten years leading up to the end of 2021, Sydney, Hobart & Canberra were the only areas in Australia where median property prices had at least doubled.
In some places (Perth in particular), prices barely shifted over the ten-year period. Over the full ten years, Perth only managed 13.1% growth and regional Western Australia managed 8.3% growth. This may have had something to do with the high base median price that Perth originally had at the beginning of the period, rivalling Sydney’s pricing in 2011 (Sydney’s $595,000 to Perth’s $485,000).
It is vitally important to choose properties that have a number of factors that will influence the value. Regional factors, such as reliance on an economic sector could impact the long-term value of the property. For example, Western Australia’s heavy reliance on mining meant that during the ‘boom’, pricing for housing in Perth was close to Sydney’s. Once the mining boom dropped off, however, the value of property in the area decreased. Similar things have been happening in regional Queensland centres, such as Gladstone & Mackay.
Purchasing multiple properties could yield better results if you were to buy them in different cities. While Sydney may have performed well over the past ten years, there is no guarantee that it will continue to do so for the next decade.
Purchasing a property as an asset is different to choosing a house to live in. While capital growth is still important, lifestyle and convenience are what typically matters the most when comparing various properties within your price range. There might be more people also looking at those factors when purchasing a property, but it might not matter as much if the value of that property was reliant on, say, mining or tourism.
Please reach out to us if this is something you are contemplating.
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