Beware ‘National’ Data
How many times do you hear the ‘Australian real estate market’ is booming or is about to crash, as if it’s one single entity? Of course, in reality, there’s no such thing as just one ‘Australian real estate market’.
Australia is actually made up of thousands of different markets, from the capital cities and their diverse ranges of housing options, to regional centres, small towns and even individual neighbourhoods that have their own micro-markets and are very different from other parts of their suburbs.
Try comparing Sydney’s inner city apartment market with the sprawling acreages of Dural on the city’s northwest fringes. And that’s without even leaving the state. Likewise, the Adelaide Hills have nothing in common with the mining towns in remote parts of Western Australia; or the stretch of prestige homes in Sandy Bay, along the Derwent in Tasmania; or the Queenslander homes on stilts in the far north; or… you get the drift.
Australia’s many markets are so diverse that they’re more likely to be in two different continents than part of the same single housing market. They are attached to separate economies, with massive differences in population, employment, growth drivers and various other characteristics.
Average at best
Despite all of the above, we’re always being presented with national data. Just look at a recent rental report from CoreLogic which found that the ‘national rental market’ hit a decade long high for monthly growth in December with 0.6% increase in rents… contributing to growth of 1.9% for all of last year.
Sounds great, but what does that have to do with anything? When you look at the cities, Perth and Darwin had 9.7% and 8.8% rent increases, while Melbourne unit rents fell 7% and Sydney unit rents fell 5.7% for the year.
As an investor, your rental income isn’t coming from some magical ‘national property’, where we all get a 1.9% increase for the year, so you will either have had good news, or bad news in that time (and a lot more landlords are currently invested in Melbourne or Sydney units than are in Perth or Darwin, so, really, more investors are seeing negative growth on their rent than positive! Even despite the ‘decade long high’). National data is simply an average of all the markets out there and when it comes to usefulness, it’s average at best.
Let’s go cycling
If you want to be a savvy investor, you need to cast your data research net wide.
A working knowledge of as many of Australia’s markets as you can manage will enable you to spot opportunities that others won’t know about and truly diversify your portfolio.
Property markets are all at one part or another of their cycle. Just as one market peaks and even becomes overvalued, a market on the other side of the country might have just bottomed out. You can bet there will be smart investors out there using the equity they have made already from the overvalued market, to leverage into properties with upside in the market at the bottom of its cycle.
Then, once that market has had its own growth spurt, they repeat the process with the next untapped area that is primed for growth.
The money they make from one initial smart investment ends up funding a multiple property portfolio.
Portfolios without borders
The problem with growing or booming markets is that if you are a regular homeowner, it’s hard to realise the benefits. Sure, you may have got a great price by selling your house in a red hot market, but now you have to try to buy another place in the same market.
But property investors don’t have to worry about this. You are either paying off a mortgage or renting in the place you want to live, while you are free to invest your money where the opportunities lie. Cash in one property in a hot market and leverage into multiple properties elsewhere. The possibilities are just about endless.