3.2 Introduction to Property

Market speculators

The media continually speculate and debate the topic, particularly focusing on which asset sector is the most profitable. The constant comparing of the various asset classes has made investing seem like a daunting task, often making the average person overwhelmed and confused.

Often the headlines mentions the performance of property against the same factors that a trader work under maybe because the stock market is measured by similar factors and commenting on all asset classes in the same way would make it easy to compare.

However DIRECT investment property does not fit into the share market mould nor should it be measured by the factors that determine a good trade/stock market investment.

First-time investors should not be caught in the debate as to which asset class is more superior as each has its advantages and disadvantages; they have different risk and return profiles and their performance is determined and measured by dissimilar factors. Take for example the difference between property and shares. Residential property values are primarily affected by supply and demand, with some sway from the domestic economy. We all need somewhere to live, and the amount of suitable land is finite, so residential property essentially commands a built-in value. On the other hand, share values are highly liquid parcels of a company, and to some extent company performance, product type (and life), market sentiment, and their relative scarcity determine their value.

Time not timing

Investing in property is about time in the market not timing the market. As a result of this basic misconception some educators/speculators are spending too much time on educating potential investors on trading techniques more relevant to timing the market, and not focusing on the fundamentals of property investing.

The fundamentals

The fundamentals of property investing are so simple that the investor, the educators and consultants are protracting the process by looking for a perceived missing ‘secret’. Assuming that something may have been missed or by applying a said strategy (or using similar principals to the share market) their results can be assured and magnified.

Regardless of the Timing, Discount, or other clever strategies, you ultimately have to be in the market to benefit from the compound capital increases. And in time these strategies although may be helpful may not magnify the end result in any significant way. Ultimately time in the market (multiple cycles/long term investing) is the best strategy!

Australia’s property history

Just review the price of the property you lived in as a child and compare it with today's price… It is that simple! And if you need more evidence go back another generation, ask your parents the same question.

The compound capital gain per annum averaged over the last 25 years (data available from REIA) ranges from 7% to 9% across Australia.

Time not timing is a key fundamental of property investing.