Custodian Monthly Newsletter - May 2015

Rates Down Another 0.25. A Record Low.

‘For myself I am an optimist - it does not seem to be much use to be anything else’  Winston Churchill

 

There are two types of people in the world, those who see the glass as half empty and those who see it half full.

The simple truth about property is that on an annual basis, it generally grows in value.

In fact, if I look at the median house price in Australia over the last 50-60 years, there has only been three years in that time, where values actually fell. This is distorted obviously, as different capitals will perform at different times. I make this point because I regularly get asked by clients about the growth of their Brisbane properties.

I had a classic from a client recently who said he bought a house in 2006 for $400,000 and today it’s only worth $445,000. His conclusion is that property isn’t a good investment and he should sell his asset now.

I often say that there is only truth in numbers, so let’s look at the data to identify if it supports a view either way.

Remember it's the land that’s our focus.

Last year alone, Brisbane saw a 10% increase in land values. In 2006, the client paid $360 per square metre for their land.
Today, based on recent comparable land sales of $662 per square metre, the clients land has significantly increased in value by 84%.

What’s even more compelling for this client is that he owns 600 square metres in a council zoned area where dual occupancy is permitted, where even further value from the land can be realised.

Getting back to the raw data…we know that in 2006/7 the Brisbane median was $420,000. Today, it is $495,000.

So why hold now?

Because of the property cycle. I use Sydney as the barometer. In 2003, the Sydney median was $575,000. In 2011, it was still just $575,000. In 2012, it started rising and now it’s $880,000, rising by 6% in just the last three months.

So the history is that Sydney had very little growth for eight years and has now jumped over 50% with most predicting it to hit $1 million this cycle. Since the Easter weekend, the auction clearance rate in Sydney has been +87% with an average sale price of $980,000.

If I go back to the last cycle, Sydney started its boom run in 1998/9 but Brisbane didn't start until 2001. Brisbane's median in 2001 was $160,000. That rose to over $300,000 by end 2003. We are now seeing uplift in the Brisbane market (just six per cent in the last year but the inner ring is over 15%).

And need I mention again, that you can now lock in an interest rate under five per cent for five years (in fact, there are three year rates at 3.99%). Many forecast rates will fall further.

As a case in point on Sydney, I did a focus call last week to 106 clients who had properties in two Sydney estates. We are now getting valuations on properties of $610,000 which were bought for an average of $448,000 only 18 months ago.

Whilst inner Sydney was certainly taking off during 2013/14, we didn’t see the strength of these valuations in the outer areas until late 2014, early 2015.

We’re starting to see it in Melbourne now too. Clients that were put into Mernda/Doreen in 2010 have seen a 22% increase in land values.

We have two types of clients.

One who hasn’t seen enough growth in their asset and wonder whether to sell.
The others study the data and are seeing the opportunity to buy in Brisbane and Melbourne, before these markets really take off.

We have had one client acquire 10 properties over the last two years (He has seen growth in his Sydney properties) and is now just buying his 11th and 12th while interest rates and prices are so low.

It’s important for all of us to use data to make decisions.

Why? Without data you simply cannot make an informed and wise decision.

As I often say, the biggest mistake you ever make in property is selling.

Kind regards

John-signature

JOHN FITZGERALD

CEO, Custodian

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John Fitzgerald, is a renowned and respected Australian property expert with over 30 years’ experience in residential and commercial real estate, property development and property investment. He wrote a book called the 7 Steps to Wealth- now in its 8th edition - highlighting the strategy and simplifying what seems so complicated to most of us, showing all Australians that they can in fact build a wealth of their own.

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