Total Returns Stay Strong

We often see people sidetracked by the short term outlook of many in the property industry, including the media. The latest weekly, monthly or quarterly price rises or auction clearance numbers are interesting but they are not the basis for making a sound property investment decision.

Residential property can range dramatically between markets – not just between states, cities or regional areas but also within the same suburb or even the same street. This makes it hard for investors to make sense of “average” prices or “average” rents, especially based on short term statistics.

From our constant activity in the markets, however, we are seeing some strong capital gains but this is certainly not uniform across all locations. And, in some markets, this price growth has gone beyond what we consider good value or involves too much risk.

As prices rise at a higher pace than rents can adjust, we can see a decrease in the average yields. This is a normal part of the cycle. As long as the property is underpinned by strict investment criteria, we can account for this initial anomaly in our assessment of the property.

The relatively low cost of borrowing at present means that the delta between rents and holding costs is decreasing. As this occurs many investors will set their ‘buy’ price at a higher level, based upon the notion that the outgoings will be comparatively lower.

Until next week,

Jock Bing