Home
  • plan
  • Invest
  • Property
  • enquire now
  • Learn
Home
DPN
  • plan
  • Invest
  • Property
  • enquire now
  • Learn

Strategy

A falling property market could be the best time to invest and build your wealth

Property investments are favoured when the market is climbing, yet when prices fall, buyers become wary. Learn how you can build wealth by finding hidden value.

TAGS

Strategy (159) / Property investor (182) / Getting started (147) / Beginner (594) / Intermediate (553) / Expert (576) / Growth (113) / Interest rate (17) / Property investor (117) / Sam Khalil (20)

THE EXPERT

Sam Khalil

Fuelled with a passion for property, design and innovation, he has a clear vision for the future of property investment built on a solid financial model.

As more Australians face the reality of low wage growth and rising costs of living, the importance of accumulating assets cannot be understated. For anyone looking to become financially independent, securing your future requires careful planning.

Real estate has long been a favoured asset class to manufacture wealth. Property has delivered investors significant returns via capital growth over many years, in addition to rental yields. However with house prices falling, investors are cautious. But the reality is, now could be the best time to invest and build your wealth.

Why invest in property to amass wealth?

So why invest in property? Let’s consider the alternatives. If you avoid investing, you’re not developing your wealth or becoming financially independent. You are eliminating the prospect of returns.

Putting your money in a bank is safe but it is a low-growth option. Most cash deposit rates will earn 1-2% per annum. Even then, you may be restricted from accessing that money. In contrast, according to CoreLogic, property returns average more than 10% per annum over the last 20 years.

While the share market sees periods of high return, it comes with significantly greater risk. Shares are far more volatile than house prices. Many Australians are uncomfortable with such volatility as you can lose the entirety of your capital if your investment fails. Many well-known companies have collapsed, wiping out shareholders.

Share market losses may take longer to recoup, leaving you with an opportunity cost. Look at the Australian Stock Exchange, which is yet to reclaim its all-time highs of 2007. Property investing requires less day-to-day oversight and you can physically see the asset.

Real estate is also favoured because of the leverage available. A small deposit may provide means to generate great returns and wealth over time. You can borrow against equity in the property to expand your portfolio. For these reasons, property remains a standout asset class for those with the ability to research and find the right properties in a correction.

Comparing Melbourne, Sydney & capital cities

Property has delivered investors significant returns via capital growth over many years.

Setting aside fear and uncertainty when investing in property

At the peak of the market, people are confident. However this may actually be the worst time to buy from a value perspective, given higher prices. Conversely, people are reluctant to invest when there is uncertainty or fear of the unknown.

It’s human nature to seek assurances, which is why many listen to the media. They are looking for a ‘guarantee’ to say nothing bad will happen. But something bad always happens. Expectations of smooth sailing do not align with reality. From the Global Financial Crisis, to wars, natural disasters, regulatory changes - it is inevitable bad events occur. Yet still, property appreciates over the medium to long-term.

Consider interest rates. In 1990, lenders rates were around 20%. Shortly before the GFC, buyers took out loans at 9%. 10 years ago, the RBA rate was double what it is now. In each instance, property investors have substantially grown their wealth despite high rates.

Now, interest rates are at generational lows and possibly heading lower. This is the single largest component influencing property investment returns. Taking advantage of this by locking in low rates will help garner great returns and let you accrue wealth. Many investors try to time their market entry when in fact, it’s better to be in the market instead of doing nothing.

Most cash deposit rates will earn 1-2% per annum.

Monetary policy decisions are expressed in terms of a target for the cash rate.

The value proposition of a falling property market

Free - No Obligation

Find properties in growth areas

When property buyers hesitate in a falling market, better value emerges. Investors face less competition at auctions. Deposit thresholds decrease. Property prices deviate from forecast growth trends, offering a larger buffer to realise capital growth and wealth.

Investor mindset can act as a major influence. People don’t hesitate when market sentiment is positive and prices ascend. When the market declines, they freeze, even though property is a long term investment and we always overcome socioeconomic challenges. It’s smarter to invest when others are deterred and uncomfortable than when buoyant amidst higher prices.

Although Warren Buffet focused on shares, his famous quote speaks true to value arising in a falling property market. That is, to be “fearful when others are greedy and greedy when others are fearful”. Value may always be found in any given market, even during a correction. Right now there is lots of value if you research and identify properties in the right areas to buy.

Sources: Annual total return on shares and property graph and RBA Graph of the Cash Rate


RELATED LINKS

  • "The market is falling!" So why is it a smart time to invest in property?

 


Follow us on Twitter for more news, tips and inspiration.
Like us on Facebook and Google+ explore our Pinterest boards.

Like this article or found it helpful? Share it!

Newsletter

Receive our articles directly to your inbox

Next article

Disability housing provider, DPN Casa Capace aims to build $1bn in innovative homes

Go to articles list

Programs

Work with us
Giving back
Become an affiliate
Refer a friend
Help desk
Property Management
Finance

Locations

Head office
Australia
Hong Kong
Singapore

Contacts

Toll free in Australia
P. 1300 723 318
Outside of Australia
P. +61 2 9525 2033

Social Media

Newsletter

Terms of use | Privacy policy | Guarantees

This information is provided by DPN Pty Ltd ABN: 94 630 700 186, Australian Credit Licence 514759. DPN Finance Pty Ltd is an authorised credit representative 504129 and a related entity of DPN Pty Ltd. Casa Capace Operations Pty Ltd ABN: 79 624 981 184, NDIS provider Number 4050038018 trading as Casa Capace.