2018 has demonstrated some confusing economic and real estate signs that have bewildered investors including Donald Trump. We’ve seen the emergence of bitcoins, the further rise of China and more European problems. With these current developments and property valuations, what strategic approach can you take this year?
You should aim to predict where the property market is headed and not just look at past real estate statistics. As an investor, you should understand the macroeconomic picture and observe economic, population and wages growth, to predict the market 18 months in advance.
You should avoid predicting the performance of your target market through national or state based numbers only. You cannot predict Sydney’s property market by simply taking into account the GDP or job statistics of Australia as a whole. Property markets are fragmented at different stages of the cycle and with different geography, price and property types.
Figures often distort the perspective of market performance. You should look at demographics, wages growth, unemployment rate and long term job prospects in your target location to minimise the risk. If you do, you might learn that this year could be the perfect environment for property investors. Find other financial strategies available to you by speaking with your accountant.
You should also differentiate a temporary property valuation driver, from a real one. A temporary driver may drive property markets higher than their real value and could be disastrous when the economy changes or markets plummet.
Remember that capital growth is the most important factor when buying residential properties. Properties with higher capital growth in Australia often have lower rental returns. Many secondary locations can offer higher rental returns, but lower long-term capital growth. Cash flow is important but capital growth is really what counts.
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