Key to realising one’s full potential as a property investor is to consciously avoid following the herd. Unfortunately, society is littered with grossly inaccurate perceptions and flawed assumptions about our own country.
To prove a point, let’s cast our minds back 5-years to the beginning of the 2016 calendar year. Sydney and Melbourne were three years into a property boom and the widespread commentary was then suggesting that it was impossible for housing supply to ever keep up with its growing population.
Blinded by societal ignorance, people followed like sheep. Without a shadow of doubt, the most popular locations to invest in this time 5-years ago were Sydney, Melbourne and Brisbane (for no reason other than it being Australia’s next biggest capital city). Little did all these people realise that their investment would significantly underperform.
For kicks and giggles
Imagine if one was gifted $500,000 cash and that the clock could be wound back 5-years. A condition of accepting the generous gift was that it must be used to purchase a piece of Australian real estate and, to avoid becoming yet another victim of making a creature-of-habit financial decision, the property could not be in one’s hometown.
To spice things up, the sponsor offered a further $500,000 to the investor who picked the best performed property market over the next 5-years. Are you up for the challenge?
Capital city performances
Human tendency to conform to a consensus point of view, groupthink, and confirmation biases are the basis for society’s widespread flawed decision-making. An overwhelming majority of property investors (including a big bunch of so-called ‘experts’) adopt sheep-like behaviour and gravitate towards capital cities with a foolish perception that it’s better and / or safer.
If one accepted this retrospective challenge and invested in a detached house in Sydney in January 2016, one would have enjoyed the tail end of a property boom and then had their heart in their mouth when a subsequent downturn saw the median house price fall $190,000 over 2-years.
Sydney’s net result over the 5-years ending December 2020 was an underwhelming 13 percent increase in median house price (and only 5 percent for apartments).
Brisbane and Adelaide (both 15 percent) produced much the same rates of capital growth to Wagga, Cairns, Dubbo, Hervey Bay, Mount Gambier and Gold Coast.
Related article: Capital growth, diversity and sustainability
Further proof that the size of a city’s population has no bearing at all on property market performance, Australia’s fourth biggest city, Perth, produced a 7 percent decline in median house price over the 5-years ending December 2020 and Darwin lost 14 percent.
Related article: The true meaning of housing demand
With a circa 30 percent increase in house prices, Melbourne and Canberra performed much the same, but the allotted $500,000 was not enough to purchase a detached house.
Those who compromised on asset selection and instead purchased an apartment in those two cities would have seen capital growth of 18 percent and 8 percent, respectively. No cigar there!
|House value @ January 2016||5YE house price growth||Apartment value @ January 2016||5YE apartment price growth|
And that just leaves Hobart. Groupthink mentality meant that very few people gave one of the world’s most beautiful cities the time of day.
The reality though is that $500,000 was almost enough money to purchase a detached house ($355,000) plus an apartment ($286,750) and then really enjoyed the capital growth of 50 percent and 43 percent, respectively.
With rental income also increasing by 35 percent, Hobart was the runaway star performer as Australia’s best performed capital city over the last 5-years and is still red-hot today!
Totally ignoring opinions of others and skilfully interpreting market fundamentals enabled Propertyology to identify Hobart’s potential and subsequently help 100 clients invest in Hobart between 2014 and 2016.
Related article: What did Propertyology see in Hobart that others missed?
Ignorance and arrogance
For some people, there’s an arrogance about owning an investment property in one or more of Australia’s three biggest capital cities.
For many others, it is a huge void in knowledge about their own country – and a proper understanding of market fundamentals – that prevents them from ever considering investing in regional locations.
For Propertyology, our formal studies of Australian real estate history to the absolute nth degree have afforded us a great appreciation for properly evaluating risks and opportunities and (objectively) analysing all locations.
Spread across the eight states and territories, there are 110 Australian cities and towns each with a population of 20,000 or more. And a further 70 towns have more than 10,000 people.
Collectively, these 180 individual locations are akin to companies on the stock exchange for property investors.
While there are various regional locations which lack sufficient economic diversity for Propertyology to consider investing in them, many others – at the right time – will offer significantly more potential for capital growth and cash flow than the higher profile big, expensive cities.
We practice what we preach. Here’s an example of Propertyology’s buyer’s agent work
The winners were…
With a 64 percent increase in its median house price, the idyllic lifestyle location of Byron was a gold star performer over the 5-years ending December 2020. Byron is also (officially) home to Australia’s most expensive real estate so it was not a contender for our allocated $500,000 property investment challenge.
The Victorian wine region of Macedon (64 percent capital growth), Mornington Peninsula and Torquay (both 56 percent), Noosa and Shoalhaven (50 percent), Tweed and Kiama (40 percent) all performed better than 7 out of 8 capital cities. But they also failed the $500,000 housing affordability test.
Nestled in the north-east corner of Tasmania, the seaside municipality of Break O’Day (townships of St Helens and Scamander) was top of the pops with a 73 percent increase in its median house price in just 5-years.
For capital growth and rental income growth, Tasmania’s second and third largest cities, Launceston (40 percent capital growth) and Burnie (30 percent), performed better than every capital city other than Hobart, providing an important reminder that small-fish-are-sweeter.
Victorian locations featured heavily among the finalists with Wonthaggi (59 percent), Warragul (57 percent), Seymour (55 percent), and Colac (50 percent) right up there as Australia’s best performed property markets.
Geelong, Ballarat, East Gippsland, Swan Hill, Wangaratta, Shepparton and Mildura also produced a higher rate of capital growth than 7 out of 8 capital cities over the 5-years ending 2020. Ah, the opportunity cost of investor ignorance and arrogance!
For less than $500,000 and with more than double the rate of capital growth of Sydney, Brisbane and Adelaide, New South Wales also had various regional star performing property markets.
These included Batemans Bay (47 percent) and Cooma (42 percent). Meanwhile, Orange, Bega, Griffith, Goulburn, Coffs Harbour and Lithgow all had above 35 percent growth.
Make sure you win this next challenge…
As a full-time student of Australian property markets, I can promise you that the evidence of the last 5-years is not an isolated occurrence.
The specific locations that will be the best-performed property markets in any 5-year period will always change, but the winners often are not those with the highest profile. For one more example, the graphic below shows capital growth rates for detached houses during the 5-year period ending 2005.
The objective of every property investor must surely be to have a red-hot crack at investing in a location today that is among Australia’s best real estate performers over the next 5-years.
The consensus opinion is usually miles off the mark. Let this report be a great lesson for confusing online reading and groupthink with quality research and skilful analysis.
Propertyology are national buyer’s agents and Australia’s premier property market analyst. Every capital city and every non-capital city, Propertyology analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.