Show notes – Listener questions – will property continue growing at 7% pa on average? Analysing rate cycles, population growth, increases in wealth, foreign investment and government intervention. (Ep. 193)

 
 

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In this week’s episode, Dave, Cate and Pete answer two great listener questions; one is as the title describes, and the trio address growth drivers, assumptions and some of the things that don’t always correlate with property price growth in the way that people expect them to.

Cate reports of a very segmented market at present. It is the renovated properties that are getting buyer’s hearts pumping, and it’s not necessarily just the family homes either. Inner-ring properties are also performing well and Cate touched on two challenging auctions that she missed out on – both in high income areas.

Dave discusses an interesting observation within his business. With interest rates rising, and extra complexity of cashflow changes, he is finding that more people are investing in property plans. In tandem with this, his team’s refinancing demand is strong also. This is not so surprising, particularly when the trio consider the lending data in the past week’s market update episode.

 
1. A great question from Phil about historical average capital appreciation in capital cities

Hello gang! 
When you quote property appreciation estimates, you usually say something like 7%, based upon the historical average appreciation of the capital cities. That 7% has been made up of a number of factors:  

  • population growth
  • increases in general wealth
  • increase in dual income
  • foreign investment
  • government positive incentives (first homebuyer schemes)
  • government mismanagement (not building enough housing, or a mismatch between where the housing is built and where people want to live) 
  • falling interest rates (since ~ 1990: 17% to 0%, then bouncing back up recently)

Most of the above criteria can be expected to maintain going forward…. except the last one. You will get variations in interest rates going forward, but you likely can’t get that huge tailwind from the drop from mid teens down again. So my question is: 

  • How much of the 7% return we have seen would be due to falling interest rates, and how should we alter our expectations of returns going forward?

Dave answers this compelling question with the aid of some charts. Looking at what happened prior to 1990 is a telling example of interest rate rises not necessarily correlating with price declines.

“Property values grew at the rate of inflation, right up until 1985/1986 and then they grew faster than inflation”, notes Dave. He explains that property values do decouple from what’s happening with interest rates.
 
Pete also notes that property price growth is not directly related to interest rate movements, and he cites some specific periods that prove that more elements influence property price growth than just interest rates. The availability of credit bares a stronger relationship with property price growth than other conditions as listed in our listener question, according to Pete.
 
Pete busts some myths about population growth and the impact on house price movement, using the COVID lockdown period as a case in point.
 
The trio also touch on the labour market and the inclusion of two workers per household, as opposed to decades prior.
 
From foreign investment to government mismanagement, Pete and Dave touch on some of Phil’s points, and they maintain that “government not building enough” is not the root cause of heightened property price growth at all. As Pete states, it’s generally the private sector that builds most of the housing because government (or community housing) is represented by only about 10% of housing.
 
Dave contemplates the possibility of a new government and the in particular, some of the changes that could potentially be initiated to enable more buyers to purchase residential property, including the option for first home buyers to access superannuation to do so.
 
 
2. And a fabulous question from an anonymous listener who asks the trio about open home etiquette. To leave your name and number? Or to seek a different approach? Tune in to hear some valuable insights…
 
A neighbour attends an Open House but complains to your assistant at the door that they do not wish to give their details to be logged on to the Register as they do not wish the vendors to be told of their interest. You need to address their concerns and advise them of their rights and your obligations. How would you address their concern, whilst trying to build rapport with the potential buyer? In your answer include three (3) communication strategies you would use. 
Pete asks Cate to explain some of the quirks, reasons and outcomes when it comes to the collection of personal data at an open home.
  • Why do agents ask for personal details?
  • How to buyers go about remaining anonymous? Cate shares some ideas for buyers to consider, but she warns those who use bogus names/numbers of the risk they take when the property is of interest.
  • What are some of the reasons buyers like to remain anonymous? Cate sheds light on the typical motivations of buyers who feel uncomfortable about giving out their details
  • And Pete asks Cate to share with the listeners some of her juiciest and most favourite undercover jobs she has tackled for buyers who have wanted to remain anonymous. 
 
8. And ….. our gold nuggets!

Gold Nuggets

Cate Bakos, the ‘Property Buyer’s Gold Nugget: If a buyer has a decent relationship with the agent, they should be prepared to politely ask the agent not to call them about a particular property. Aside from saving the agent time, it will demonstrate to the agent why it’s not the right property for them.
 
David Johnson, the ‘Property Planner’s Gold Nugget: Dave talks about long term capital growth and the need for investors to be invested in an asset class that outperforms inflation. Regardless of short reduced overall yields, Dave firmly believes that investors are better off to invest long-term, than to risk inflation eroding their future wealth by waiting it out.

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