The market has turned, all the pundits are selling the virtues of a bull market in 2013, and the REIV is complimenting this fact by providing their weekly results that suggest both an increase in the number of properties sold coupled with sales rates in the order of 70%.
If you want to highlight this bull market further, you would be saying that we have the lowest interest rates in over 40 years, a correlation as to the question of ‘cost to rent’ versus ‘cost to buy’, a preceding decrease in levels of value in 2012 of some 0-20% across the board, and maybe more in some localities and market segments.
Yes, the stars, moon and planets are all aligned, but are they? I would say that most private investors are still sitting on their hands.
So what is the obstacle holding property participants back? Could it be the obvious general economic factors that one may consider, like the proposed September 2013, Federal Election, current unemployment levels, mining industry and iron ore price fluctuations, European economic markets and uncertainty or the instability of the stock market? In essence though, even with these factors, property should be back on the agenda as the number one investment strategy for stability. Let’s face it, ‘brick and mortar’ provide security and stability in uncertain times. Everyone knows this!
From my point of view, there is now only one ingredient that doesn’t allow the investor back into the market. Capital Growth. Real estate in Victoria has become and will continue to provide little, if any, Capital Growth. The market is static due to fear and uncertainty. The usual herd mentality; why buy today when I will buy it cheaper in the weeks or months to come?
From an investor’s point of view, in simple terms, if a property basically ‘self funds itself’; with the rental income offsetting the mortgage interest costs, then any capital gain in essence becomes ‘profit’.
All of the above factors suggest to me that real estate in 2013 will continue to be relatively static. Yes there will be exceptions; yes there will be bargains and new price benchmarks. The real deal is that unlike most professionals, I am telling you to be cautious; the market has not changed in the 3 months of 2013 from the 2012 market.
As a property professional, we can never pick the bottom of the market, nor can we guarantee you that only 5% of property investments are worth purchasing. What we can tell you though is that it’s not what you pay for real estate, but how you buy it.
Be the critical investor you need to be selective, don’t just appoint a buyers advocates because of their smoke and mirrors and scripted dialogue. Choose correctly and 2013 will provide you with one of the best opportunities to acquire real estate selectively over the last 10 years.
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