Property Price Growth Continues Its Upward Trajectory!

Core Logic’s latest market update shows that property values have grown at their strongest annual rate in close to seven years. Yet, rental yields have hit record lows. This actually should be no surprise. It makes sense that if property values are growing at record pace, rental yield will struggle to keep up and therefore reduce as a percentage of the value of the property.

Sydney’s growth over the last 12 months is a whopping 18.4% and the highest since 2002. I was just listening to a podcast at the beginning of this year where experts were predicting Sydney’s property values had peaked. Those predictions were a long way off the mark! Predicting is fraught with danger, just like any form of short term thinking.

I certainly hope property values are about to slow down in Sydney and Melbourne at least. The longer they continue to spiral up at such a rapid pace, logically, the probability of a correction of greater proportions increases. This can cause broader issues.

The Fin Review ran with a headline in today’s paper that ‘rental yields hit record lows’. This disparity between value growth and income return is another sign that prices are due to stall. Conversely it is also a sign that rental income is due to increase. It reinforces our long-held view that a successful property strategy has capital growth as the number one priority, followed by a reasonable and secure rental income. Investors continue to speculate on future capital gains as Tim Lawless from Core Logic notes. What he doesn’t mention, as most commentators like to focus on property investment as it is sexier, is that people will take more risk and spend more money on their ideal home to achieve their lifestyle goals. This also has a strong impact on capital growth figures.

 

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