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Where to buy property

When people ask me what I think about property I always have one reply: "Where?" The reason for that is my first property lesson and that's property does not necessarily follow the same script right around the country.

Australian Property Monitors recently revealed that some 25% of national postcode areas fell in price, but that means 75% of postcode areas either held their price levels or saw them rise.

State-by-state

State-wise, Western Australia and Queensland were stellar performers and so was the Northern Territory - but in a place like New South Wales there were plenty of ups and downs. The Australian Financial Review recently pointed to price falls in sought after sea change destinations such as Noosa, Byron Bay, Torquay, Sorrento and many other great beach-oriented spots.

Suburb-by-suburb

Second lesson: one year means nothing with property. And the third is that properties, even in the same state and city, can have conflicting price movements.

For example, in Sydney, Darling Point went up by a whopping 113% but Maroubra only rose by only 0.4% and nearby Kingsford rose by 11%. Meanwhile Mosman lost 2.3% and Granville lost 6.2%.

Is the turnaround in sight?
In 2005, median prices fell in most suburbs in New South Wales, but 2006 saw risers just outpoint fallers.
This makes me think that after bad house price results since 2003, the turnaround looks like its happening.

Another lesson is to look at the rents, and in Sydney they are talking about a rental crisis and even 20% rises. Ultimately, higher rents will make first-time home buyers look harder at buying, And higher rents will bring potential landlords back to auctions as well. More people at auctions and houses for sale should make for better prices going forward.

How long do you hold property?

Fourth lesson is to buy on a 5 or 10 year basis. If you buy now, you will see prices go considerably higher over a 5-year period, but I don't think they will be as strong as the last boom based on current prices and income growth.

If you bought in, say, 2000, by waiting to 2008 to 2010 - a 10-year basis - I bet you will see some good prices, unless something strange happens such as a power station is built down the road.

The possible winners

I am bullish on Sydney over the next few years and Brisbane too, because everyone wants to move to the Southeast corner of Queensland. For that matter, most Queensland by-the-sea locations where there is work should do well.

I suspect WA will slow down as the resource boom eases, but for property investors you need to do your homework. A company called Residex prepares reports on historical sales, rental returns, expected capital growth and so on, and is a big help to buyers.

Bring in experts
That's the next lesson - recruit the help of property experts.

Another lesson is to look to where tenants want to live - near good transport, great city facilities and in a healthy and positive environment.

Maximise the deductions

An important lesson is to buy newish properties to maximise the depreciation deductions. These can sometimes turn a negatively geared property into a positive cash flow property.

Financial software can evaluate how a property is expected to appreciate over time and the really smart property investor will look at expected rental returns, capital growth, expenses and tax deductions to ensure that the buy is an investment and not just an emotional play.

No place like home!

Of course, buying a property you will live in and renovate can be a great way to boost your wealth. There is no capital gains on your principal property and many suburban millionaires got their start by buying property when prices were low.

Rising rates

By the way, if the Reserve Bank raises interest rates it will impede the property price comeback - but it will only delay it. That's an important lesson too!

Finally, if you want property to be a part of your overall financial planing strategy, we can help you.

Published on: Monday, April 02, 2007

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