Making News

Jackson+Rowe has been accepted to an Australian-Wide Referral Network you probably haven’t heard of, Real Estate Results Network.

The membership is made up solely of independent real estate agencies. The quality of the members is borne out by the fact that the sales teams in these agencies have the highest real estate sales productivity as compared to all other groups including the large real estate franchises, in Australia.

One of the benefits of being a member is the quality and detail of the market information the members pass on to the group. The consistent feedback we are getting is that sales prices in most areas are now back to 2015 prices.

That may not mean much but in percentage terms, it’s a drop of about 20% and a lot more than what the newspapers are reporting.

The reason for the discrepancy between the statistics and our experience is because of differences in time. The sales figures being compiled by research companies and then reported in the press are based of sales settlements through to September. The sales actually took place, in the main, anywhere between April and July. By comparison, our estimates are based on what buyers are offering on property right now. I have to say the market in April and the market now are two very different environments.

The best forecaster of where the market is about to head is www.realestate.com.au. They measure the number of people looking at their website compared to the number of properties on the website.

It’s a classic measure of supply and demand.

As the average number of views per property falls, they know the number of properties that are going to be sold will fall. www.realestate.com.au picked the boom in Tasmanian’ property 6 months before it showed in the figures and well before it was recognised by mainstream property researchers. The information they are passing to us right now is demand for Sydney property is down 22% and so prices will fall further. Louis Christopher who runs SQM Research has just released his Housing Boom and Bust report for 2019.

It is great reading if you don’t mind his overall conclusion that real estate values will probably fall by 30% over the next three years from their peak of July 2017. We will then have 4 years of stagnation. Looking on the bright side, he suggests the Reserve Bank might lower interest rates to put a floor under the market. And speaking of looking on the bright side, Eric Idle wrote the song ‘Always look on the bright side of Life’ 40 years ago for the movie, ‘The Life of Brian’. It’s now the most popular song played at funerals in the UK. They love their irony and stoicism. Maybe that attitude will catch on with real estate agents and property owners in Sydney.

After all, even though we have dropped back in value, property is still more than 60% more expensive today as compared to 2008 values. That is well above inflation.

Merry Christmas & Keep Smiling!

If I have given you the idea that it is a bad idea to buy an investment property right now, I might be wrong. And I might not be either.

There are a couple of twists in the future that could mean that you are better to buy now than later even though the market is still falling.

Let me explain.

Let’s work on the idea that the value of property still has 10% more to fall next financial year. If you buy a two bedroom unit for say $600,000 today then by June 2020 it will be worth $540,000. You will have lost $60,000. Clearly not a great deal so far. Then let’s say the market bottoms and after a couple of years, five years, however many years, it starts to climb and eventually doubles in value before you are ready to sell. Now it’s worth $1,080,000 and you sell it.

Forgetting the costs of selling and buying for a moment, the profit you made on the property was $1,080,000 minus $600,000 or $480,000. If you had waited until the market had bottomed you would have bought for $540,000 and made $540,000. So far, waiting for the bottom before you buy seems to be the go doesn’t it?

But like any profitable venture, the Australian Tax Office loves you for your courage and sacrifice and will want you to pay tax on your profit. If you had bought before the next capital gains tax changes come in to effect, you will still only pay tax on 50% of the capital gain. You will have made $480,000 and have to pay tax of $120,000 approximately. So you get to keep $360,000.

On the other hand, had you waited for the property to bottom in 2020 before you bought, you will have made a profit of $540,000 and then have to pay $202,500 in tax approximately. How did this go bad? The reason is that waiting past June next year will probably see the Capital Gains Tax rate move from 50% to 75% because that’s Labor’s policy and as I have said, I’m betting on a Labor budget next May. The longer you hold an investment property, the higher the growth and the bigger the tax bill.

My point is that waiting for the market to bottom makes sense only if you are focused on buying cheaply.

If you are focused on your long term wealth, that might not be the right way to think about things.

Focus on the end result.