PROPERTY MYTHS If you always think property prices go up…

With so much emphasis on property in the media, it can be difficult to sort fact from fiction. But, before investing in any type of asset, including property, it is important to consider the pros and cons and any commonly held misconceptions.

In this article we are focusing on three [3] property myths.

Myth 1: Prices always go up

Believing that property always goes up is understandable, especially given that prices have dramatically increased in major cities in recent years.  But, like most investments, the property market demonstrates cyclic patterns. That means, at times property performance can be stagnant and show little or no growth. Like many investment cycles, a boom can be followed by a bust.  It is important as an investor to know your market trends and our friendly sales team are here to guide you through that process. We also believe that there is always a bargain property to buy.

Myth 2: All property is the same

When we think about property, we tend to think about it as one market. We generally take a macroscopic view. We hear about the performance of property and can often think that buying a property anywhere will turn out to be a good investment. This approach can lead to decisions that fail to yield the results that you expect.  Within the property market are countless micro-markets. Property prices can depend on the different economies they have links to (as we have seen in mining towns) where prices reached record highs in recent years, only to be followed by a sharp decline.

Similarly, we hear general reports in the media that property prices are rising and this general sentiment can set unrealistic expectations. For example, specific price expectations in the CBD will be very different from those in a particular region or suburb. Many tend to think that all prices in all areas will always rise and this is where the danger lies.

Myth 3: Property is a sure thing

The combination of low mortgage rates and rising home values means debt levels have increased dramatically. In fact, the ratio of household debt to disposable income is recorded at 155.9%, which is a record high.

If you cannot afford to repay a home loan due to changes in personal circumstances, such as losing your job, your entire financial future can be placed at risk. Any slumps in house prices could result in many people being unable to cover outstanding loan amounts if forced to sell.

Take a long-term view

It is important to think about property as a long-term investment and buy within your means so you are not financially stretched, even when buying a home to live in. Explore your capacity to repay a loan with your accountant, mortgage broker or financial advisor.

If you take on a home loan, consider buying insurance to help protect you in case your circumstances change and you are unable to meet your loan repayments.

When it comes to investing, it is important not to put all your eggs in one basket. That way you may be able to protect your money by spreading risk over different markets.

Reference: PPM Group Newsletter