RBA Governor issues property investment warning

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Outgoing Reserve Bank of Australia (RBA) governor Glenn Stevens has reminded Australians that making money through investing in property is not guaranteed.

In one of his last engagements before stepping down in September from the RBA governor’s position he has held since 2006 Stevens used his address at Trans-Tasman Business Circle event this week to remind people that Australia’s property market is not immune to price falls.

“The assumption that there's an easy road to riches through leveraged holdings of real estate . . .  is not a great strategy,” Fairfax media outlets reported Stevens as saying.

“And prices can fall; they have fallen; I think since I've been in this job we've seen them fall two or three times,” Stevens reportedly said.

While Stevens’ warning on the possibility of price falls may seem obvious to some, Rich Harvey, chief executive of propertybuyer.com.au, said there are many investors who don’t have a complete view of how property prices work.

“I think a lot of people have this false presumption that real estate prices always rise because they really haven’t seen many downturns, significant and prolonged periods of downturns in the market,” Harvey told Your Investment Property.

“I guess you could say there is an inherent assumption for a lot of investors out there that prices will continue to rise and that’s where the smart investors are a bit different and they do understand that the market is volatile and it does move in cycles,” he said.

For anybody who does believe prices can only go up, Harvey said they only need to look as far as Perth or Darwin to see that’s not the case.

“Case in point is that Perth and Darwin are in the downside of their cycle and possibly have further to fall. That’s a good indication that different parts of the market are affected by different parts of the economy,” he said.

“Perth will come back at some point, it’s got two million people, good growth potential, good living environment and good regional economy, so it will come back but it’s a question of timing.”

For investors looking at property cycles, Harvey said they need to be aware of the right time to enter the market and also realise they may need to spend a period of time in the market to see strong returns.

“Property is one of the safer ways to make money and grow wealth overtime and it’s a great hedge against inflation. But it’s really important investors leverage safely, leverage carefully and look to get professional advice.

“You see people buying five or six properties in somewhere like a mining town and the person that’s done that has obviously not sought advice. They’re just throwing all their eggs in one basket, chasing high yields and looking for the fast road to riches.”

While seeking advice may be important, Harvey said it’s equally important that advice is both professional and independent, which is why he is supportive of recent efforts to limit the impact of property spruikers.

“It’s great to see that the states are taking some further action against spruikers, in particular the unscrupulous ones that really promise riches to the masses but all they’re trying to do is get big fess and then run away.

“But we’d definitely rather see tighter regulations around how property investment advice is issued in this country.”
 

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