By John McGrath
It’s time to shake off the financial pain of last year and get set for an amazing time of growth. Real estate guru John McGrath gives us his tips for staying ahead during what he says could be the best growth period we’ve seen for decades.
The new financial year brings new opportunities and new confidence to the Australian investment landscape, particularly in the property sector following the ill effects of the global financial crisis of the past 12 months.
Let’s face it, we’ve all probably taken a hit, and times have been tough for most. But just as a major global recession is an once-in-a-lifetime event, so are the investment opportunities it creates once the dust has settled.
The biggest lesson of the past year is the need for diversification. Property provides an effective anchor in any investment portfolio, with strong rental yields balancing declining asset values.
Shares lost massive capital value last year – some more than 50% – and dividends were slashed while property lost 10-15%, but rents remained historically high – providing much needed cash flow.
The next six months may be the time when many investors re-enter the property sector, particularly those who are re-constructing their DIY super funds. Let’s look at the fundamentals:
- Property prices for houses and apartments are off 10-15% (with the exception of homes under $500,000 which are holding ground or even up in value, thanks to the First Home Owners Boost).
- Rental yields are at historic highs – often above 5% – which well exceeds what we previously considered to be healthy.
- Vacancy rates are at 1.0-1.5% in most capital cities.
- Interest rates are at record lows with the standard variable hovering between 5.6% and 5.8% – far below the levels that helped prompt Australia’s largest property boom earlier this decade.
Picking the bottom is a great concept – but not even the greatest economists and analysts in the world can do it until after the event. It’s also understandable that some investors may be feeling nervous with the financial challenges of last year still fresh in their minds. There’s nothing wrong with being cautious. But there is a science to investment and the fundamentals should always dictate our choices – not nervous market sentiment.
Having said that, as we welcome in a new financial year, I predict a turnaround in investors’ confidence. We’re already seeing it in the share market, which rose 20% over the past three months.
Everyone’s a genius in hindsight and FY10 is the time for confident decisions. Smart investors know that to make the biggest gains you have to be willing to move first – before the rest of the herd mobilises and the recovery really gets underway.
One thing is for sure – markets and economies are cyclical and what goes down will eventually go up. The key factor in all of this is unemployment. As long as unemployment remains under 10%, I confidently predict national property price increases of 5%-15% over the next 18 months.
