If you look back to 2008 and the Global Financial Crisis, you will find it was swiftly followed by a significant property boom as well as a mining boom that led to a flourishing Australian economy with capital flooding into the market like a river after rain.
This period was characterised by an optimistic atmosphere, a booming population, and easily accessible and inexpensive credit with falling interest rates and consistently soaring asset prices.
And over time interest rates slowly fell.
Then to add fuel to the fire, the RBA’s interventions during the Covid era dropped interest rates to “wartime levels” – virtually zero – and painted a picture of virtually 'free' money.
This of course fuelled the once-in-a-generation property boom we experienced in 2020-21 however, as all things in nature and the economy, seasons change.
The RBA’s monetary policies also catalysed a surge in inflation, which was initially predicted to be a temporary blip, but which has stubbornly persisted much longer than many anticipated.
Now the cure indeed seemed to be worse than the disease, forcing the RBA to tackle inflation by raising interest rates 12 times in as many months.
And as the rates rose, the era of 'free money' faded into the annals of recent history.
Sure inflation is in retreat now, but interest rates are expected to remain above their long-term average for a while.
And this shift demands that property investors adjust their strategies in the new financial era.
Be sure you have the right strategy
Staring at this altered landscape, property investors have no choice but to switch gears.
Low interest rates which could paper over the cracks of poor investment choices or bad financial habits, are no more.
Just look back to the property boom of 2020 - 21 when low-interest rates and almost “free money” led to almost every property, even secondary properties, increasing in value strongly.
It made even the most inexperienced investor look like a property genius.
Now moving forward in this higher interest rate environment our property markets will be fragmented meaning there will be winners and losers.
Currently, each state is at a different stage of its own property cycle, and within each state, the submarkets are fragmented as each segment is affected differently by interest rates, the cost of living, and our economic challenges.
For example, the more affluent suburbs in Sydney, which led the downturn of 2022, this year lead the market upturn.
Of course, it makes sense that the more affluent population in these suburbs is not being hurt as much by rising mortgage costs, rising rents, and the rising cost of living in the less affluent working-class suburbs.
And with the cost of living rising faster than wages for many, and little relief in sight, it is likely that our markets will remain fragmented, with on the one hand first home owner suburbs and lower socio-economic areas being more affected by high mortgage costs and higher rent, while on the other hand gentrifying and aspirational suburbs where the locals can afford to, and prepared to pay to live likely to outperform.
But there is a silver lining
Nevertheless, every challenging period offers a silver lining, and this one is no exception.
Property investors have been handed an opportunity to take advantage of a new property cycle.
And an opportunity like this doesn’t occur very often.
The last few years have provided a stark reminder that inflation destroys purchasing power and that investors must carefully consider which asset classes offer the best long-term protection against this force.
Smart investors know that owning well-located residential property has historically been the best long-term asset.
Moreover, the realisation that access to finance will be more expensive moving forward, means investors will need to have a time-tested property strategy and ensure they only buy quality assets – the type that outperforms the market averages.
It’s during turbulent times that we hone our skills.
As they say “rough seas do make skilled sailors.”
It's in facing these challenges head-on that we build resilience.
Yes, money is no longer 'free', but the seeds of discipline we sow now could lead to an abundant harvest.
It's not the changing tides of interest rates that will determine our financial futures, but our responses to them.
So get a great team around you and take advantage of this new property cycle.
It also means you need to plan
So while the property markets will create significant wealth for many Australians, statistics show that 50% of those who buy an investment property sell up in the first five years.
And of those who stay in the investment game, 92% never get past their first or second property.
That's because attaining wealth doesn’t just happen, it’s the result of a well-executed plan.
Planning is bringing the future into the present so you can do something about it now!
Just to make things clear...buying an investment property is NOT a strategy!
It's important to start with the end game in mind and understand what you need and what you want to achieve.
And then you have to build a plan, a strategy to get there.
The property you eventually buy will be the physical manifestation of a whole lot of decisions that you will make, and they must be made in the right order
That's because property investment is a process, not an event.
If you’re a beginner looking for a time-tested property investment strategy or an established investor who’s stuck or maybe you just want an objective second opinion about your situation, I suggest you allow the team at Metropole to build you a personalised, customised Strategic Property Plan.
When you have a Strategic Property Plan you’re more likely to achieve the financial freedom you desire because we’ll help you:
- Define your financial goals;
- See whether your goals are realistic, especially for your timeline;
- Measure your progress towards your goals – whether your property portfolio is working for you, or if you’re working for it;
- Find ways to maximise your wealth creation through property;
- Identify risks you hadn’t thought of.
And the real benefit is you’ll be able to grow your wealth through your property portfolio faster and more safely than the average investor.
Your Strategic Property Plan should contain the following components:
- An asset accumulation strategy
- A manufacturing capital growth strategy
- A rental growth strategy
- An asset protection and tax minimisation strategy
- A finance strategy including long-term debt reduction and…
- A living off your property portfolio strategy
Click here now and learn more about this service and discuss your options with us.
