23 November 2019
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What 20 years in property can do

John McGrath
26 February 2019

There’s a recurring question in real estate…

‘When is the best time to buy property?’ Answer: Twenty years ago.

‘When is the next best time to buy property?’ Answer: Today.

Some new data from CoreLogic crystallises this message.

Over the past 20 years, national property values have increased by 197.4%.  That means a house worth $500,000 back in 1999 is now worth close to $1.5 million today.

Just think about that for a minute. Where were you 20 years ago? How cheap does $500,000 look today compared to back then?

Over my 35 years in real estate, so many people have told me about the golden buying opportunity they missed 20 years ago because they got scared.

It’s sad to listen to these stories and see the looks on people’s faces as they lament what that one investment 20 years ago could have done for them today. The wealth, security and lifestyle options that such significant capital growth would have given them at this point in their lives.

These stories are all about fear and the herd mentality.  Here’s what Warren Buffett, one of the world’s most successful investors, has to say about fear: ‘Be fearful when others are greedy. Be greedy when others are fearful’.

Let’s apply that logic to today’s market conditions in Sydney and Melbourne.

Are people greedy right now, or fearful?  Yes, they’re fearful. The scary headlines are getting to them. They can see that property prices have fallen 10-15% and the buying opportunities are there but they’re hesitating.

Why are they hesitating? Because ‘the herd’ is talking about how bad it is out there; and no one wants to be the little black sheep who buys amongst all this doom and gloom.    

Here’s the reality – let’s take Sydney.  We had 75% growth over five years, followed by a 10-15% price drop to date.  This is not even remotely catastrophic – nor unexpected.  Even for buyers who purchased at the top, all they need to do is remain in their new homes or hold their investments for the medium to long term, which should always be the plan when you buy real estate anyway.

While there are definitely cycles in the property market, well-located and in-demand property rarely declines in value.

Let’s go back to the CoreLogic stats. Over the past 20 years, combined capital city values have increased by 212.4%. Combined regional markets have jumped 150.3%.  Let’s dig deeper and survey the performance of our East Coast capital city and regional markets…

Capital growth over 20 years

1.     Melbourne takes the cake with 274.6% growth in home values over 20 years

2.     Canberra 230.7%

3.     Sydney 201.9%

4.     Regional NSW 185.6%

5.     Brisbane 182.8%

6.     Regional VIC 179.5%

7.     Regional QLD 123.6%

Now, not every property in Australia will have amazing growth over 20 years. Local factors in different states, like the impact of mining and short-term commodity booms on the regional Western Australia market can have a big impact on long term capital gains.

The data shows that at this point in time, regional WA home values have grown by 77.5% over the past 20 years. Had the data been taken during the peak of the mining boom, it would have been a far more impressive number because this market has declined significantly since then.

However, on the East Coast where we have strong concentrated population growth and housing undersupply, reliable long term capital gains are relatively easy to achieve if you buy well.

People who make the most money out of property have a very long term view with this asset class. They buy when the market is low and either hold, or sell when the market is high. They buy quality property in desirable locations close to major job centres and lifestyle amenities. Then, they pretty much sit and wait.

It’s a simple recipe to follow and we have plenty of historical evidence proving that good Australian real estate delivers wealth.

In Sydney and Melbourne today, now is the time to buy for future wealth. As Buffett says, it’s time to be greedy. Pull away from the herd, ignore the chatter and focus on the fundamentals of what property can deliver for you.

Don’t be the person that says to me in 2039, “I should have bought back then.”.

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