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Past Performance In The Property World

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Transcript

When you’re thinking about that, why is that so important to the now? There have been many, many markets that I can give you the examples of that have not done so well over that 10 year mark that people usually measure property performance of. Then when they think about it, they go, hold on a minute. why would I buy there if it hasn’t done anything over the last 10 years?

If you’re thinking about property performance and looking at the past, yes, there is some things that you can take out of it. But firstly, before just looking at the last 10 years of data, you need to know what was actually happening in these last 10 years from economic events, interest rates and credit, as well as what was happening in that particular market over that time period that created those results.

Why? Well, because if something was not happening during those last 10 years, and it was extremely quiet, market was not moving or booming in the way you wanted it to, then what’s happening today that’s different to those last 10 that could create that? If there isn’t anything different, then, you know what?. You may be right, past performance does equal what’s going to happen ahead.

But if there was a difference and if you go, okay, well let’s take Ballarat for an example. The 10 years prior the previous last one to three year growth cycle that’s been occurring, but the 10 years prior to that, there were pockets that were relatively flat, maybe up and down, or doing nothing at all. But in the last few years, what was happening there that made this change? Well, if you think about what’s happening in a satellite city next to it, or the capital city being Melbourne, prices were reaching places where they were not affordable to some. Prices were rapidly rising and it gave investors and people who wanted to buy properties less choice or less options. Then at the same time, rents were rising and people started to get a different taste in their mouth for living in that area and using their money in that area. Where people then started to actually migrate to Ballarat realized that, back in the days, an hour 10, an hour 20 was a long time. But now, that hour 10 or hour 20 drive is seen as, oh, look, it’s only an hour 10, an hour 20 away.

See that, over time, the distance that’s far is actually becoming shorter based on what’s being built out, as well as the perception of what people think is far and close between 10 years ago and now.

So when you think about that, then came supply. There wasn’t much supply happening in Ballarat, so when the demand was really happening, then that balance threw it out and the price competition occurred, price rises occurred, and if you combine that with certain jobs and other activities that were happening, then that really made a good difference.

Before this price market started to move, the rental market was moving there as well. Rents were tightening, vacancies were tightening, the gross yields were improving in some parts. The competition in the rental market was happening. People envision themselves wanting to live there and actually settle down, not just temporarily, try it and realize it’s not for them. Although that would have happened for some people, the majority, where they chose to rent, where they competed for rent, really ended up competing for price when they wanted to purchase.

These signals were not happening in the large ways that were many years ago, that’s why you could say that possible performance had nothing to do with what’s happening now, or did happen in the recent years, in Ballarat.

You can take so many examples of Hobart and other markets as well. Where certain signals were just not there the years prior. In Sydney, certain signals were not there, then they occurred in certain phases.

What you’ve got to realize is that a five year trend, a 10 year trend, a 15 year trend, 25, or even 30, put different cities in different first place positions. When you’re thinking about that, don’t assume that past performance didn’t occur and that means today’s performance didn’t occur. Also, don’t assume that past performance did occur and growth must occur today, because that might take people to the 2017 peak, or 2016 peak, in parts of Sydney. You might look at the last few years and go, hey, I’m going to be stupid if I don’t buy here because of how high the prices are rising, how good the performance is, then all of a sudden what’s happened over the last 12 months.

Yes, this might only be a small phase in the huge cycle, but timing can be crucial, as well as time in the market. And if you keep basing your timing of what happened over the last 10 years, then whether you’re an experienced investor, you’re a first time investor, that won’t make the difference that you’re looking for.

Next time you’re looking at investing, past performance is just one key part, but really what are the signals? What are the differences? Or even, what are the comparisons? Because if everything’s the same, then sure, very valid point. But if things have changed, then maybe your outlook on investing should also change.

That’s it from us at InvestorKit, the experts in wealth creation, helping you take action.