It is an understatement to say that it has been a wild ride in some sectors of the property market over the last 12 months. Even seasoned property professionals could not have fully predicted the market response to COVID19 and the impact of economic stimulus packages.
The residential sector has been the biggest beneficiary of these changes, particularly those ‘sea change’ and ‘tree change’ locations where many have taken advantage of not being tethered to CBD offices during the pandemic. This has caused unprecedented growth in these markets with a flow-on effect on local housing and rental options. Economic stimulus packages and affordability of money have also caused a flurry of home renovation and home improvement activity.
If you look a little closer at the changes that have occurred over the last year, it is clear that many of these changes were inevitable, and the pandemic environment has merely brought them on far sooner than anticipated.
COVID 19 has brought about a genuine acceptance of remote working technologies that have freed us from a reliance on CBD office space and an improved work-life balance for many.
As humans, we can be fickle and often get comfort from doing what everyone else is doing – riding the investment wave so to speak. This approach can result in some lucky wins but with real property, continued success really comes from taking a more evidence-based, analytical approach using some key investment and property performance principles. After all, for most people real property will be their most significant investment – it is worth investing the time in making the right decisions. Consider the following:
1. Look at the underlying fundamentals.
At its most basic level property provides the built environment for humans to survive and thrive. Humans will always need housing and trends in leisure and business will determine the sectors and subsectors of the market that are required into the future. As society changes, there will always be winners and losers in real property. The demographic characteristics of a population will also be a significant influence in societies’ property requirements. For example, the aging population in Australia provides a solid foundation for the success of health-related property assets.
2. Each property is unique.
There are certainly trends at play in various sectors and sub-sectors of the market. We need to take the time to understand these changes. However, the viability of any property investment also comes down to an analysis of a unique property. It is not just the sector analysis that is important but an analysis of the built form itself, the management of the property, the strength of leases and quality of tenant and also any environmental threats that come from its location. The old adage of ‘Location! Location! Location!’ will always be fundamental to property.
3. Risk is relative to return.
Property is generally considered to be a long-term investment because of the costs of entry into the market. There will always be a risk for those seeking a high short-term return from property and the risk will grow proportionally to the anticipated return. Of course, informed investors will try to buy before the top of the market but all decisions need to be based on the fundamentals of investment performance of a property into the future. When buying an investment property, you are essentially buying a cash flow.
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Dr Andrea Blake co-facilitated with Emeritus Professor Mike Hefferan at “Real Property Essentials in a Rapidly Changing Environment” a one-day course held at QUT in 2021.