I recently spoke at the Sydney property Buyers Expo to a large group of property investors and presented a slide highlighting the movement in the Sydney median house price according to RP Data. From $88,000 in 1985 – it has now grown to $920,000. Next thing I said turned the crowd into a sea of puzzled faces:
“I believe the real value of that 1985 Sydney house is in fact $1.2M today. Can you tell me why that might be? – Let me give you a clue: the answer is a number.”
The guesses started - depreciation.... inflation.... rental returns.......lots of guesses, not the one I was looking for.
Someone in the crowd then yelled out the typical answer those who don't really know Real Estate use: “location, location, location!”
No, no, no!!! The answer - and I know that most Custodian know it well - is LAND SIZE.
The average land size in 1985 in Sydney was around 800m2, today it is around 400m2. That 800m2 block today in Sydney will sell for at least $1,500 per m2. That is how I derived my $1.2M – because there is only truth in numbers.
Property Vs Real Estate
Too often people confuse PROPERTY with REAL ESTATE.
While most of our clients use this as a focal point, some still seem to be confused by all the Property talk out there.
There are many things that are different about Custodian, but the main difference that we are very proud of is our clients. When CEOs and heads of international conglomerates or top law firms happen to trust Custodian to guide them with their Real Estate portfolio, I know that we are doing things right.
The smart money is now going into Real Estate. The Sydney boom has paved the way for Melbourne and Brisbane. The CIO of one of Australia's top 4 banks just bought investment number 13 with us; one of Brisbane’s top orthopedic surgeons just bought investment number 14 with us. And each month the list of Custodian duplicating is increasing.
What are our clients buying?
Land. They are building their land bank. The Sydney market didn't just boom, it highlighted the Real Estate value is in land and land growth. In the last 4 years the Sydney median went up by 77%. Our clients who bought there paid an average of $554/m2 for their land. That same land now values at over $1,300 / m2 and still rising. Nearly double the median house price growth.
Another great case study is the land growth in Pimpama for the last 12 months. In 2014 the cost per square metre was $405 and now in 2015 it is $600 per square meter, this is a massive 48% growth. Why did it happen? Contributing factors are population growth, two new schools being built in the area and the development of a $1 billion Westfield shopping district. The median house price growth is way behind but as we saw in Sydney, it will catch up.
We first sold Real Estate in Pimpama in 1995 for $130,000. That was for a 984m2 block with a 195m2 house. Less than 20% site coverage. Today 2 more dwellings could be built on that land.
As always my advice to you is to build your land bank before prices race ahead as they have in Sydney - and do it now, whilst interest rates are low. Simply follow some of Australia's smartest brains that are doing exactly that. You will look back as many have done in Sydney and say I'm glad I did when I did or you may end up like those who wished they had of bought that Custodian Sydney Real Estate when they were advised to.
Prices in Sydney have gone up on average by $250,000 in the last 18 months.
That's life changing.
The Webinar on Disruption
Our wrap up webinar is not to be missed. Focus is on “the disruption shared economy” and how it is going to affect you. We have one of the world’s top Futurists as part of our panel. If you haven’t registered yet, now is the time. I promise you this will be an eye opener to the future. Here's just one stat: the smart phone is only 5 years old but has already destroyed 47 different businesses models.
If you can see change it becomes an opportunity. If you can't, it can be a threat. There's more change coming in the next 5-10 years than in the past 100 years! Let's welcome it and build on it.
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