April 2011 Property Rant


April 2011 Property Rant.

Well, everybody has an opinion on what is going on in the economy. Some are even right.
The media abounds with experts telling us what is happening, and what is going to happen.

It should come as no surprise that many (even most) of these experts have vested interests.
Once you dig in a bit it’s common to find that the experts are either property spruikers (telling us that everything is good, the market is full of opportunities) or share brokers/commentators (telling us how bad the property market really is and to get out now!).

So often the message is…..”Oh, and by the way ‘if you subscribe to my investment letter/seminar/services you will outperform the market by 20-40+ percent”.

Ok, maybe that is just a coincidence and they really don’t have any vested interests (pigs might fly also).

The really big challenge is to look at this mass of information and decipher it, to decide just what is really going on out there, to separate fact from fiction.

This is not an easy task. A bit like panning for gold where you sift out ‘the fool’s gold (Iron Pyrite)’ get the small amount of real gold.
It is evident that since the GFC things have changed. In fact, they were fundamentally changing before the GFC unfolded.

This property rant sets out to separate the sheep from the goats.

Even 5 years ago a property investor didn’t have to be that smart or perceptive. For that matter, neither did a share market investor. The market just seemed to be headed north all the time, the good times were rolling, and even if you made a bad decision it was no time before the market rose to the extent that your risk was washed away. Anybody can do well in that sort of market, and many did.

Many, many people were obscenely over exposed with margin loans or property debt, way beyond prudent debt and risk levels.

What has happened is that reality has finally struck. Now, an asset has to be judged on its real value, its intrinsic no-nonsense value after the hype and spin has been taken away.
The market will no longer forgive poor judgment. Laziness or poor judgment in investment decision-making or over gearing will now kill you financially.

There is a fundamental difference between being intelligent and having good judgment.
Just pick up any current financial journal and note the people and entities who were caught out when the markets crashed by their over exposure. Seriously intelligent people who just did dumb things. Was it greed alone? In some cases yes.

Now, where is the Australian property headed in 2011-15?

The experts are pulling us this way & that like a tug-of-war. But I don’t think the basics have been done away with.
They are just relevant again, where for 7-8 years they have been forgotten or ignored.

Will property fall ’30-40%’ in the immediate term?
Yes. some already has, and more than that amount.
But it is naïve in the extreme to extrapolate that across the whole market.

Some property has continued to appreciate over the past year or so, in the face of all the doom & gloom. And will continue to do so!

So, where do we turn in these times?

If a property has intrinsic value, it is likely to remain a fairly sound investment.
If it is not impaired by:

Lack of transport and transport networks
Lack of services (schools, shopping, medical etc)
Servicing industries, or regions (markets) that are in decline or risk of decline (tourism??)
Therefore: rising unemployment in its immediate area
Being bought at an inflated price
Being subject to adverse natural events
Then it is positioned well, and is basically sound.
Hey, this is not rocket science.
Property investors now need to do their due diligence more strategically.
As they always should have.
Are the risks higher? Only if you don’t identify them and manage them.
Is capital growth dead? Only if you purchase the wrong property.
“There is no bad property: Only bad pricing and bad management”.
Nothing is more certain than the fact that “in the midst of adversity lies opportunity”.

Investors now have to get serious about their investing. It’s like walking through a minefield. If you’re not careful, you will get hurt, maybe fatally. But if you have a plan, follow it meticulously and don’t take your eye off the ball, then you will get through this all and likely do well.
The days of simply letting an advisor do all of your planning are well & truly over.

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