10 lessons learnt from past property downturns to take into 2021

Clearly there will be continuing issues with COVID-19 affecting our local economy and the socio-political problems that plagued the world last year are unlikely to disappear.

Yet most analysts and economists agree that our property markets should perform strongly in 2021.

But let’s put this in context; Australia’s property markets have been sluggish for the last three years.

This started with the APRA induced credit squeeze prior to the Haynes Royal Commission into Banking in 2018, followed by the fright of a Labor government changing property tax laws in 2019 and finally the Coronavirus induced property market lockdowns of 2020.

Then in October 2020 our property markets started moving out of their downturn phase and all capital cities other than Melbourne (which is now catching up) finished the year higher than they started.

So what’s ahead for property in 2021 and beyond?

Given there are a number of markets across the country, all at differing points of their own cycles, I’d like to look back and share 10 lessons I learned from previous property downturns that could be helpful in 2021.

1. Property slumps don’t last forever

Whether it’s property, shares or bitcoins — booms just don’t last forever, neither do downturns.

The thing is, downturns are just one part of a cycle, so they will always end at some point.

Every boom sets us up for the next downturn, just as every flat period provides opportunities to get set for the next upturn.

The trick is to maximise your upside while preparing yourself for the next downturn.

2. Stick to your strategy

Don’t change your long-term investment strategy because of short term factors.

Look for what’s always worked, rather than what’s working now.

Your long-term wealth will be created by the capital growth of your property portfolio increasing your asset base.

Sure, cash flow is important – it will keep you in the game. But it’s capital growth that will get you out of the rat race.

Let’s be honest, almost anyone could have made money during the boom years as the market covered up any mistakes.

But as Warren Buffet says: “You only find out who is swimming naked when the tide goes out.”

In other words, if you’re not following a strategy that works in all market conditions you will be caught naked when the market changes and it will – because as always the good times we’ll experience in the next few years will also come to an end.

3. Get rich quick = get poor quick

Successful property investment takes time.

Be wary because, just like at the beginning of every other property cycle, there’s a new breed of spruiker out there looking to lure the uneducated into parting with their money by offering them a short cut to riches.

4. Take a long-term perspective

Don’t let emotions drive your investment decisions.

Early last year, during peak of the scare regarding COVID-19, fear started to rear its head. People who had made poor investment decisions, or those who bought near the market peak, started to panic.

Then, as the market picked, up FOBE (the fear of buying early) kept home buyers and investors out of the market, they were worried that property prices could still drop further.

Now that it is clear that our markets are on the move again, FOMO (the fear of missing out) has set in – many homebuyers and property investors are concerned that the market will take off before they get a foothold.

Let’s face it: emotions of any kind are not a good idea when investing.

The secret is to keep your eye on the long term horizon and not worry about any short-term vagaries of the market, because they will pass.

5. Property investment is a game of finance, with some houses thrown in the middle

Strategic investors don’t only buy real estate — they buy themselves time by having the correct finance structures in place including cash flow buffers to ride through the cycle.

6. Invest in locations with a future, not a past

Since the bulk of your property’s performance will be determined by its location, rather than looking for somewhere cheap to buy, find a location where local economic growth will lead to jobs growth, wages growth and population growth.

Look for a suburb where the local demographic can afford to and will be willing to pay for their properties because they earn high disposable incomes.

And in these post-COVID times, locations that will outperform will be desirable, aspirational suburbs which offer mobility and proximity.

By proximity I mean the ability to work, live and play all within 20 minutes’ reach will be the new gold standard desirable lifestyle.

It seems that in our new “COVID Normal” world, people love the thought that most of the things needed for a good life are within a short public transport trip, bike ride or walk from home.

Things such as shopping, business services, education, community facilities, recreational and sporting resources, and some jobs.

7. You know less than you think

A healthy ego can be a good signal of future success.

However, an over-inflated ego will usually mean you end up worse off than when you started.

If you’re the smartest person in your team you’re in trouble, so recognise that mentors and experts can help teach you the things that you don’t even know that you don’t know.

8. Don’t mistake money for wealth

A big bank balance means someone’s rich, right?

Well, no, it doesn’t.

Many high income earners live from one pay to another — and never have enough money “left over” to invest in income-producing assets.

The truly wealthy not only have a capital growth portfolio behind them, but they have also learned that money is not wealth.

That’s why they make time for their family and their health, and they give back to society and to their local communities, because that is where true happiness lies.

And these lessons were brought home clearly to many of us as we were huddled in our Coronavirus cocoons.

9. The sky isn’t falling

When the good times seemingly turn bad the property pessimists and doomsayers come to the fore.

These “commentators” predict the end of the financial world suggesting we should all sell up and hide under a rock.

On the other hand, sophisticated investors ignore the white noise because they are concentrating on the long-term, where the view is calm and clear.

Think about it… How often do we have to hear “this is the end of the world as we know it”, until we realise this is not the end of the world as we know it?

10. Opportunity is knocking

When opportunity arises, strike.

Remember Warren Buffet’s words: “Be fearful when others are greedy and greedy when others are fearful.”

Sure it’s difficult to take action when others around you are talking doom and gloom, but it is during downturns that lifetime wealth is made.

So while the best time to buy a property may have been 20 years ago, the second best time to set yourself up for financial independence and buy investment great property is right now.

But don’t expect a bargain, as well located investment grade properties are in strong demand as, Like after every downturn, there is now a flight to quality my buyers.

However, that property that seems reasonably expensive today will look like a bargain when you look back in a decade.

The bottom line

Strategic investors don’t really care too much about market phases.

Instead they concentrate on growing their portfolios and investing in the right type of properties, whenever it suits their finance, their strategy and their long-term goals.

Currently there has been a palpable change in market sentiment on the ground and this is reflected in strong buyer activity at a time when there is a little good stock on the market.

Here are some of the indicators suggesting that 2021 will be a great year for property investors:

  • Consumer confidence has been gradually improving, as has business confidence
  • Auction clearance rates have been consistently strong in the last few months of 2020, not just in the two big auction capital of Melbourne and Sydney but around Australia.
  • More buyers and sellers are in the market and transaction numbers have increased considerably.
  • At the same time the banks are keen to write new business – another positive for our housing markets and in March this year they are going to further loosen their lending criteria, increasing the finance capacity for many buyers
  • Bank loan deferrals have been falling – there’s no chance of an avalanche of forced mortgagee sales as many were worried about.
  • The latest rate cut and the “guarantee” of rates remaining low for at least 3 years, will give home buyers and investors confidence
  • Moving forward further jobs creation, consumer confidence and business confidence (leading to spending and employment) will underpin our housing markets.

Just to make things clear…we’re not going to fall off a fiscal cliff as those naysayers predicted.

And there is no Australian property bubble that’s about to burst as those perma bears keep telling us.

Quite the opposite – there is a perfect storm of positive factors developing for our property markets this year – a confluence of multiple growth drivers which will propel our property markets into 2021 and 2022.

Article from: au.finance.yahoo.com