RBA’s running scared about house price rises
I listened to a report last night on the radio relating to comments from Glen Stevens, Governor of the RBA. The crux of this report was the Reserve Bank is concerned house prices are going to continue to rise due to an undersupply in housing and a large population increase on the way. Now property prices have generally risen for as long as the statistics on house prices go back. His concerns, however, are for a rapid increase.
The point the journalist was trying to explain was that if you have a house & it goes up in value; you’re really no better off. This theory has been thrown around by both property skeptics and property lovers (like Dolf Deroos) for many years, and if I take the skeptics side for just a moment, I agree that if you had a house worth $400,000 and it increased to $500,000 within any timeframe, then logic suggests that if you sell to upgrade, you’ll need to spend say $600,000 for the house that was worth $500,000 back when you bought your last purchase (for $400,000). So the real loser in this instance is the renter who is forced to enter the market at a higher price.
BUT, the true winner is he or she who has multiple properties, the astute property investor.
Let’s say you had 4 properties (3 rentals & 1 you live in) and you paid $400,000 per property on the same day. Now let’s say the Reserve Bank is right (and we hope they are) and the price increases in the next 2 years to $500,000. Now we’ve just had an increase of $400,000 (4 x $100,000) and yes, if we were to sell the home we live in, replacement value would be $500,000, but if we sold the other 3 because we want to cash up our investments, we’ve just pocketed $100,000 per property (less any expenses – this is a very simplistic and hypothetical explanation for illustration purposes).
So if this is the case, it shows that there is a loser, a status quo and a winner in this circumstance. It’s not a secret, never has been, but you invariably will be in one of these 3 categories. My old boss told me a saying many years ago “The difference between a rort and a perk is that a rort is just a perk you’re not in on!”
There’s many things to learn along the journey of multiple property ownership one of the most important is to realise than investing in property is a journey not just an event or series of events (one of the many things we do and teach as part of our property sourcing model through our property coaches and support evenings), so choose to be the right person in this story.
The last point in the report on the radio by the journalist said this “there is one group of people who are going to gain from this, landlords [aka the person with 4 properties], but unfortunately usually it’s the wealthy upperclassman who have investment properties so we now see a divide between the upper and lower class.” Last point, if you do research (which the RBA has) you’ll find the majority of investment property owners are ‘middle class’ at best, average Australians not the elitists, but more on this in another blog. Opportunity knocks, the time is now.Posted on November 29, 2009