Where Do You See Property Going In 2022?
More broadly, where do I see the property market going? And I will talk about 2022 in particular. Okay. We’ve got obviously got a raft of factors that potentially might be impacting property, price or demand in this year, some of the big ticket items that I’ve seen sort of coming up in the last week or so, interest rate rises, inflation and interest rate rises sort of linked in together.
A bubble bursting caused by recent strong price growth. We’ve got impacts from overseas. What’s happening over in eastern europe, which is, you know, an absolute, I guess, travesty. And and my heart sort of does, it’s very distressing and there’s a lot going on, I guess, and that could potentially escalate.
All right. Then you’ve also, there’s another question coming through there, but these are probably the large, these are the large talking points at the moment. We also have a federal election which in my experience in the last, 20 years, almost as a property investor, the federal elections are probably the greatest impact on property price growth.
Alright, legislation changes, policy changes, people stopping buying, waiting to see who comes into into power. So that’s actually probably the most underestimated impact on property prices in 2022. To answer the question, what do I think will happen?
Well, I don’t have a crystal ball. I’m not an economist. This is my opinion. For me, I try and de-risk an investment where it is a mute point, what does occur right. We might have interest rate rises, if you think that they are going to rise, these other people who think that they might not until 2024 which is the last sort of timeline that the r. B. A gave, we’re not here to speculate, I would prefer not to sit on the sidelines waiting to see what happens because that’s in times of uncertainty is when is the greatest opportunity you’ve got to think back to when a lot of the properties that I purchased personally were acquired, it was around the time of 2007, and ask yourself what was going on in that time, right. And it was the global financial crisis which looked like it was the largest financial armageddon of generations.
You know, it was doom and gloom. We had you know subprime mortgages in america, we had property crashing, we had a trickling down across the world that created huge amounts of opportunity. Okay, and for me, I’ll get to this in a moment. If our buying rules established and they are satisfied, then it is always a good time to buy that type of property.
If we can establish those buying rules fast forward a couple of years, I was still buying properties and then 2011 came along and we had 9, 11, okay, terrorist global catastrophes, all of these things, you go back over the last 20 years, what occurred each year?
You know, you had government changes, you had local floods, you had bushfires, you had all of these things occurring year in and year out and what has been the constant property is consistently over time, a very strong performer, both in yield and in growth.
So we can sit here and we can, you know, develop analysis, paralysis, we can, you know, have the fear of the unknown. Is it a good time to buy? You know, should I sit on the sidelines and wait, okay, I don’t really get sort of bought into that game.
It is speculation. We just don’t know what is going to happen, right. Um, the way that I look at it is if we can find a property that meets our buying rules, then when you find that property, it is a good time to buy that property. Now there’s two parts of that.
One of them is a location. So even if australia went backwards, you know, sydney melbourne brisbane, it went backwards for the year, right nationally macro, at, at, at, at, at, at, at, at a nation level, the property industry went backwards.
There was contraction in that environment. There are still many extremely strong performing areas. Alright. And it’s about learning a framework to be able to find those areas and finding a particular type of area that the expression is a lipstick economy or a lipstick product, right? When things are going bad people, you know, they change their spending habits, you know, they might go and buy lipstick, which is cheap and it makes them feel better, right?
So the example here is in times go bad people pull back, they don’t go and stretch themselves and by a waterfront mansion they go and buy or rent a very good standard of working class property. So you see a contraction of demand towards a particular price point, a particular type of property and that’s where you see a lot of overlap with demand in an upswing as well.
When things are going well, you have people moving towards an area, you have upgrader is people that are wanting to dip their toe into a market with a new employment. Well, guess what? They typically buy and rent the same types of properties. So you have a nice overlap where properties are performing in good and bad periods, it’s not the lower social, it’s not the upper socio, it is the heart of the market.
Okay. So it’s buying those right types of properties in the right markets. So we’re doing a lot of analysis around these types of diverse economies, you know, extreme population pressure. These are markets, we bought a lot of properties in toowoomba last year were not really buying there anymore. The horses bolted, they’re a little bit um, you know, you look at toowoomba, it’s got defense agriculture, it’s got huge public health spending and it’s also got a major large prison that’s been built a major large employer that’s coming through the pipeline, all of that is investment in the area that is set to, you know, obviously overhaul and change the area and create a huge amount of demand.
But that is stuff that would happen um in an armageddon type situation, in a very pessimistic situation, we have to be smart about this, we have to target those areas that are set to move forward regardless. We can be very fussy. We are buying one property in one suburb in one local government area across this country, not australia overall and then it comes down to the individual property.
Remember we are targeting properties that can be purchased at or below market value. We are making money when we buy, we want to make money not the seller, not the vendor, we are grabbing the bull by the horns are potentially evaluating onto this property and making money through a renovation process or at purchase.
Guess what? This has created a buffer. That’s a safety net, that might be 57 10% 12% buffer in that property of profit. Okay, that’s an insulator against any armageddon type event. We now have a property that is very strongly positive cash flow.
Okay, it’s paying us for the privilege of being our portfolio. That’s a really important point. We’re in a very diverse, affordable area when people lose confidence, you know, interest rate rises etcetera, people would dive into and you know, they won’t buy, they will rent.
So guess what? We’ve got properties in strategic locations that have evergreen rental demand. So we have positive cash flow. We’re being paid to hold this property through a downturn period. Okay. We’re far better off than we were before. Even when we don’t have capital growth, our track record of capital growth is very strong.
Even without capital growth, it is still a buy because our buying rules have been met. So hopefully that answers your question. I’ve got into a lot of detail there. Um I don’t like to speculate things might happen. They might not if we focus on that, we don’t take action. Okay. When you have take action, we do our due diligence.
We find those areas that do have a lot of upside in good times and in bad and then we find the particular right type of property that gives us an insulation, it pays us to be in our portfolio and then it’s all upside from there.