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The Importance of Capital Growth

Friday, April 11, 2014

‘Population growth and housing demand are the strong fundamentals that create capital growth’.

Capital growth = the difference between the value of the property and the original cost price

Capital growth is the main reason so many investors choose to invest in real estate over any other investment option.

Put simply, the supply of land is finite, as they say ‘they’ve stopped making it’, whereas the population is ever-increasing and the demand for property is growing at a faster rate than the supply.

These facts alone provide a very stable support mechanism for continued capital growth in Australia.

When I say Capital Growth is the ‘main’ reason investors choose real estate I am cognisant of the fact that some investor focus on cash flow rather than capital gain.  This strategy is viable in certain circumstances which I will explain in later chapters.  However, capital growth IS, without a doubt, the best way to maximise your wealth creation.  Take a look at the graph below.

The above graph illustrates that the property is making an $85 a week loss (also known as negative gearing which I will explain in later chapters).    $85 a week equates to a $4420 pa loss (before tax breaks considered).  However, the property has gone up by 10% (which is within Australia’s long term average of houses doubling every 7 – 10 years). 

So this Investor has lost $4,420 to make $35,000, or a Net Profit of $30,580* 

*(35,000 – 4,420)

I believe this is a far superior strategy than to invest in positive cash flow properties which may put $50 a week in your pocket but not grow in value.  However, there are horses for courses and I will explain in later chapters when, how and why – positive cash flow property can work for some investors.

To maximize your capital gains in a property, it would be best to buy at a time when the market is close to the bottom of the demand cycle.   However, the ‘bottom’ of the cycle can’t always be picked so it’s better to be in the market anyway, rather than hold back waiting for the next ‘bottom’.  This is known as ‘time IN’ the market rather than ‘timing’ the market.
Investors who are interested in making the best capital gain possible should focus on areas where house prices are likely to rise by more than the national average. Later chapters in this book will give you an idea as to what to look for to identify these areas.

Factors such as

1)      Has the property got good capital growth potential, i.e. is the current price likely to increase as demand increases in the area?

2)      Is there a ripple effect?

3)       Is the land size desirable?

4)      What is the prospect of splitting the block? 

A good strategy can be to create instant capital growth by buying a property at less than market value.  Just because a property might be listed at market value, it doesn't mean the seller won't take less for it. Sometimes an urgent sale is required for reasons such as ill health, divorce or the vendor needing to settle on another property. Decide on what you think it is worth and what you're willing to pay in order to get the best capital growth possible.

Shop around. To invest in real estate and create wealth through capital growth you must buy smart with careful consideration not to over capitalize on the investment.  The later chapters of this book will help you learn to buy smart.

Do you want to know more? Click here to watch five free webinars on - ‘Proven, Must Know, Property Investment Advice’

Australia has a Huge Undersupply of Housing

Friday, March 28, 2014


Latest statistics (2010) show that there is a housing shortfall of around 32% across the nation. Developers simply cannot keep up with the demand.  Why is this?

For a long time Australia has had a housing shortfall.  Put very simply we don’t have enough developers building houses to keep up with the number of Australians wanting housing.  However, the chronic shortfall we are now seeing has been greatly exacerbated by the Global Financial Crises (GFC).  The GFC saw finance approvals plummet.  Finance became very hard to get.  Finance Approval rejection rates went up by 30% and the hoops that lenders were making finance applicants jump through simply made the finance process untenable.  Many developers simply could not get finance to commence their projects so they stopped building.  And this was at a time when our population was growing at an extremely high rate.  So dropping building starts and a growing population has created a huge undersupply of housing which is only predicted to get worse.

Anyone Can Invest in Real Estate

Friday, March 21, 2014

Anyone can do it?  Are you sure?  Anyone? 

Well let’s look at some facts?

Of the 1 in 10 Australian tax payers that Invest in Property


 60% earn less than $50k pa,

 85% earn less than $80k pa.


So perhaps not anyone can do it.  But anyone, or any couple jointly, earning more than $50,000 per annum can do it. 

In comparison to other types of investment such as stocks, bonds, forex, commodities, etc Real estate investment makes a lot more sense to a lot more people.
Along with the basics of fresh air, food and water – shelter or a roof over our head, is one of the most basic human needs.
It is for these basic reasons that real estate is a simple and attractive investment.
All wealth creation strategies require discipline, commitment planning and a long term focus

As the old saying goes "you've got to be in it to win it" and you will never make any money as a real estate investor if you never actually invest in real estate.

And once you’re in it – you need to hold on tight for it’s not also a smooth road.
Along with every positive piece of press you may come across about real estate investment, there will probably be a negative article on the facing page of that newspaper.

I have often advised client’s simply to not listen to the press.  In fact, don’t even read the newspapers or watch the news.  By the time it is in the news it is too late.  BY the time the press are talking about a housing boom, it has already boomed.  By the time, they are talking about a housing slump, it has already slumped.

A real estate investor has to be ready to ride out the ups and downs of the Australian economy, just like any other investor.  Rule one – BUY.  Rule two – HOLD as the housing market rises.  Rule three – HOLD as the housing market slackens.  Rule four – SIMPLY HOLD.

Sometimes residential house prices will go a sky high. At other times, prices will hit rock bottom so fast you will want to jump on the nearest bargain before the end of the day.

The fact of the matter is, real estate investment is a viable option for most of us, and once you get started -- the hardest part is usually done.

The key to becoming a successful real estate investor, no matter who you are, is making the right decisions from the outset.  This book will give you all the education and information you need to make your real estate journey a safe and enjoyable experience.

Before you buy learn how

1)      Assess the residential property market in the area, the demand and supply, the demographics, the average rental prices and vacancy rates, the infrastructure (both existing and planned) and much, much more.  The later chapters of this book will take you through all the things you need to consider in detail.

2)      Work out how to get finance, how much can you borrow, how you should structure your finance. More on this later.

3)      Decide your strategy – are you looking for positive or negative geared properties, cash flow or capital gain. 

4)      Work out whose name to buy in? Your’s? Your Partners? Joint? Or a Company, Trust or Super Fund.

5)      Understand the basic steps in the real estate purchasing transaction

6)      Learn how to do due diligence on a property

7)      And much more…..


It may sound overwhelming but if you work your way through this book you will know everything you need to know.  So hang in there.

So yes, anyone who is willing to learn all the basics of Investing in Real Estate can do it.

Do you want to know more? Click here to watch five free webinars on - ‘Proven, Must Know, Property Investment Advice’

Investment in Real Estate is Essential for Retirement

Monday, March 17, 2014

 What are your dreams for retirement? To live near the beach and spend your days walking, swimming, fishing?  To travel the world and see new sites?  To live near your family and be able to spoil the grandkids?  Whatever your dream – the reality is that you will need money to live on.  As a financial planner I often ask my clients ‘how much do you think you need per year to live a comfortable retirement?’ Most people will answer that they think they would need around $50,000 per annum to live comfortably in retirement. Most financial analysts will say that the average amount required at retirement to live comfortably is $500,000 per person.  And this is presuming the family home is already paid off.


And by comfortably, I simply mean being able to eat out one night a week, take a holiday once a year and live a basically comfortable existence.  Nothing extravagant.


The frightening reality is that;


       Currently 76% of all retirees in Australia are retiring on less than $20,000pa.  This is only marginally over what is called ‘the poverty line’.


       22% of people over 65 need to continue working and this will most likely increase as the Government keeps raising the retirement age.


       The current average superannuation payout is only $130,000 for males, and $45,000 for female (2009 figures) – well short of the $500,000 estimated to be required.


       People are living longer, and longer and longer.  Generations ago you were lucky if you lived till 65, now people are living well into their 90’s.


       Old age pension will continue to deteriorate – there are currently 5 tax payers for every retiree, by 2040 there will be 2.5. Put simply – the Government will not have the funds to keep paying pensions in 20-30 years when a very large proportion of the current generation will be ready to retire.


The retirement age in Australia is currently 65, and if you look at a general break down of 100 average 65 year old Australians these are the statistics.

  • 24 are dead
  • 54 are on pension or welfare
  • 16 are still working
  • 5 are financially independent
  • 1 is wealthy and financially secure

These are sobering statistics but the goods new is that you are reading this book, getting yourself educated and informed and will have the opportunity to become one of the 6 per hundred of Australian’s who are financially independent, wealthy or secure.

So Why Real Estate?


The following chapters will explain to you in detail why Real Estate is superior to all other forms of investment.  That’s a big call I made right there.  But trust me, I am sure by the end of this chapter you will understand why I say that. As the following chapters will explain investing in real estate contains all of the attributes of solid wealth creation such as; capital growth, low volatility, tangibility (bricks and mortar), rising rents, low vacancy rates, high barriers to entry, tax advantages, ability to add value, and the ‘Power of Leverage’.

And the facts speak for themselves.  "Bricks and Mortar" investment is the most common money-making strategy for the Richest 200 Australians according to Business Review Weekly (BRW), which each year publishes an annual list of the nation's wealthiest individuals.


Real estate investment can be a powerful way to start or boost your retirement fund, but you need to do your due diligence and choose the property investment option that is right for you and your financial situation.

Which Capital City will do their best this year?

Monday, February 03, 2014

By Jessie Richardson
Friday, 17 January 2014

With 2013 well and truly behind us, Property Observer is looking forward to the year ahead. We’ve asked four market experts to weigh in on where we’ll see the best capital growth this year.

Which capital city will perform the best in 2014?

Charles Tarbey - chairman of Century 21 Australia


Brisbane. During the last year, other capital cities moved up in price far more than Brisbane did. And if I look at the three most vibrant ones – Brisbane, Sydney and Melbourne, the last two had the strongest growth. Three years ago, Brisbane and Sydney had very similar prices. But in the last 12 months, Sydney’s median prices have jumped almost 14%. The median price in Sydney is now close to $750,000, while it’s around $445,000 in Brisbane.

Sydney investors used to sell their properties in Sydney to downsize and buy in Brisbane, and still have a quarter of a million left over. That stopped three years ago, but now it’s back on the table.

If you look at discretionary spending, the majority of people who buy in the Sunshine Coast are from Melbourne. And as capital gains in Melbourne have increased, there’s a very big discrepancy in the prices of those sorts of properties in Melbourne and those currently available on the Sunshine Coast.

Brisbane and the surrounding areas have stayed flat in recent times, in part due to the floods, along with other factors. Astute investors will be picking up on those areas.

Victor Kumar - Director and Principal of Right Property Group


Growth in any area generally follows a period of higher yields (annual rent expressed as a percentage of purchase price), if all other fundamentals remain the same. Given that money is fairly cheap, where you can get sub 5% interest rates on loans, the higher yielding suburbs, and indeed states, will and have seen a buying frenzy.

The result of this is that there is excessive heat in the market. Buyers, and indeed first time investors and home owners, are starting to pay over the top in a bid to get into the market, in the hope of not missing out on a good growth spurt.

Adding to that volatility, there are a lot of investors jumping into the market with their super funds, taking a longer term view on their purchases and who are therefore not fazed about paying a few thousand dollars extra to be ahead of the competition. There certainly will be a substantial increase in pricing in most metropolitan areas.

Given that Sydney traditionally has been yielding 6.5% plus properties in areas that show good investment fundamentals, the market is in an absolute frenzy with the lower interest rates, and the added bite of new year’s resolutions and so forth, it is generally a market I would not buy in unless there are notable price points between new and old. Certainly, I would be concentrating more in the mortgage belt and coastal areas, so that when the heat does go out of the market at some point in time, there isn’t such a major correction.

Brisbane is absolutely the other market to watch. Rising prices in Sydney are leading to reducing yields, and Brisbane’s lower priced (in comparison to Sydney’s) properties will be giving the high yields most seasoned investors are accustomed to. There will be a natural influx of out of state investors there, which will and has led to a strong market recovery.

Generally if you are buying here, this year you will see good growth, and yields will decrease. Naturally my preference is on established properties in the mortgage belt area here outside of the flood zones.

Melbourne, in the suburbs where the fundamentals do work, is never going to be a high yielding proposition, yet the growth is likely to be pretty good, given the infrastructure changes and the influx again of self-managed super funds and out of state investors seeking new markets. It’s likely to show good strong growth.

Perth, Adelaide and the other main cities in the country are, in my opinion, likely to lag behind these three areas (Brisbane, Sydney and Melbourne) in terms of growth in 2014.

The point to note in all of this is that whilst the market in each state is being driven by factors such as media attention, lower interest rates, more buyers in the market and good infrastructure, even though a state is highlighted for growth or decline, there will still be pockets within these states which will be bucking the trend. Therefore due diligence is required before jumping into a state or suburb just because everyone else seems to be investing there.

Tim Lawless - Head of Research, RP Data


Brisbane is arguably the best example of a city showing strong fundamentals. Gross rental yields are amongst the highest of any capital city (4.6 per cent for houses and 5.6 per cent for units), housing prices are much lower than Sydney and Melbourne (the median house price in Brisbane is 36% lower than Sydney’s and 24% lower than Melbourne’s). Population growth is strong and there hasn’t been a substantial uplift in new dwelling supply, indicating a persistent undersupply of housing. Rental vacancies are around the 2% mark according to the REIA which is likely to drive rents higher as well.

Perth’s housing market has likely passed peak growth conditions. We are seeing rental rates now tapering as Perth vacancy rates rise, transaction numbers are trailing off and yields are slightly below average. We are also seeing the rate of overseas and interstate migration into Western Australia slowdown, which is likely in response to a wind down in the major infrastructure project pipeline that is evident across many of the resource intensive regions of the state.

It is logical to expect those markets that have been very ‘hot’ in terms of capital growth will naturally start to cool over the coming year, in fact we may already be seeing early signs that peak capital gains have passed in Sydney and Melbourne.

The key challenge for those investing in the housing market over the coming year will be to balance rental income with expectations for capital gain. In our view, investors should be approaching the housing market with a balanced strategy: seeking out homes that will provide opportunities for long term capital gains whilst also returning a healthy rental yield. With typical yields across Sydney and Melbourne now below 4 per cent for houses and slightly higher for units, finding balanced investment opportunities that offer both rental income and prospects for capital gain are becoming more difficult.

Catherine Cashmore - Market analyst


There is nothing to indicate any slow down in the market's overall direction in 2014 - but I do think it will come in 2015.

Canberra and Adelaide are likely to remain soft however investors are the main players in this cycle and Sydney (gains of which could be in excess of 10%,) followed by Melbourne, Perth and Brisbane (+ 5-8%) are all set to benefit.

There are potential headwinds for the economy - as most are aware, job security is a factor for many buyers - unemployment is trending upwards and the Government is accentuating the problem with its unhealthy obsession to restore a surplus.

To offset this, money is flowing into the local established markets via strong immigration from China and India, for example, with other factors such as an increasing amount of wealth in self-managed super funds, which is a strengthening trend.

Interest rates are likely to remain low - which will assist mortgage holders and investors and for those entering the market, the concentration is most likely focused on their monthly payment rather than total upfront cost. However it's that upfront cost and the shortage of affordable supply, which will continue to deter first time buyers.

No doubt, the winners in this market have been - and will continue to be - investors and second time buyers - however, a growing and very vocal minority of low income earners and first time buyers, are starting to question the legacy they have been left with.

It won't change the current cycle, or stop the speculation - but perhaps it will inspire a much needed debate on the long term, feasible, and sustainable solutions.

Queensland Property Industry is the most Confident

Tuesday, January 21, 2014
  1. While positive sentiment improved across Australia to the highest level since the Property Council/ANZ Property Industry Confidence Survey began in 2011, Queensland was the knock-out.

The results revealed a 10 point spike in Queensland's confidence for the March Quarter, up to 152 on the index, the highest in the country.

A score of 100 is considered neutral.

The state also had the highest expectation of economic growth in the nation over the coming year.

"We have seen a dramatic shift in confidence among Queensland's property industry over the past two surveys, driven primarily by the ongoing recovery of the residential market," Property Council executive director Kathy MacDermott said in a statement.

"The previous quarter's survey results exhibited first signs of a residential revival.

"During the past three months, industry's house price growth expectations have grown to the highest levels in the country, and to historic levels for Queensland."

Queensland's retail capital growth expectations have also been building over time and now sit at the most positive levels seen in Queensland.

The retail sector has experienced 15-point growth over six months and is now second only to the Northern Territory.

Premier Campbell Newman said the results show confidence in the reform programs being undertaken by his government, including restoring the principal place of residence stamp duty concession, and a $15,000 grant for new homes.

"We've seen a 13 per cent increase in housing finance commitments in the year to November and a 4.9 per cent increase in November in trend dwelling approvals," Mr Newman said in a statement.

The survey polled approximately 2600 property and construction industry professionals from across the country in December 2013.


By: 16th January 2014

The Message for 2014: Choose your Location Very Carefully

Thursday, January 09, 2014

By Terry Ryder
Wednesday, 20 November 2013


The experience of 2013 has taught investors, once again, how careful they need to be in their location choices.

When markets are rising, as some have this year, investors can be deceived into believing that any purchase will give them growth.

That's especially so when some media would have us believe that "the Australian property market" is white hot. The reality is that only a very narrow strip of real estate Australia has conditions remotely resembling a boom.

Most cities and regional areas have recorded moderate growth this year and others have struggled, with a few over-supplied markets in sharp decline.

The last time a property boom swept the nation, encompassing almost everywhere, was ten years ago.

These days, buyers have to be selective. A poor locational choice can result in an under-performing property surrounded by rising markets.

The latest House Price Indexes from the Australian Bureau of Statistics, describing annual growth to September, have Sydney as the only city with a double-digit increase. Melbourne and Darwin (6-7%) have had moderate growth, Brisbane has grown just 4% and Canberra, Hobart and Adelaide have stagnated.

In regional Australia, selected cities and towns have done very well this year, including a few where annual growth has topped 20% - among them Miles and Cloncurry in Queensland and Narrabri in New South Wales.

Some have had sharp corrections, due to local conditions. Notable examples are Queensland coal mining towns like Moranbah and Blackwater, and the iron ore town of Newman in Western Australia.

Moranbah demonstrates the volatility of pure mining towns: once the number one location in the nation for capital growth, it has recorded a 37% decrease in its median house price in the past 12 months, according to Australian Property Monitors figures.

Newman, which saw its median top $800,000, has recorded a median below $500,000 with its most recent sales. No doubt it will rise again when the massive Roy Hill mine cranks up construction. I couldn't sleep if I owned property in places like this.

This week I was in Central Queensland, which provides a case study in the variations that can exist across quite short distances. Gladstone, a city with high real estate demand but way too much supply, has recorded a marked decrease in prices and rents. The median house price for the suburb of Clinton is down 10% and South Gladstone has dropped 8%.

In Mackay, where new supply has coincided with a drop in demand thanks to a downsizing coal industry, the previous strong growth has halted.

Meanwhile, in unheralded Rockhampton, sales volumes have increased and prices are following. The city has more economic diversity than Gladstone and Mackay, with less reliance in resources. It's also considerably cheaper.

The message for 2014 is to choose locations carefully. These is no national property boom and while I expect Brisbane to rise and Perth to continue to be strong, most cities will deliver only moderate growth and some, like Canberra, will struggle.

Home Values are Increasing

Monday, December 09, 2013


Capital city home values are increasing at their fastest pace in three years, according to the latest RP Data quarterly review of the residential property market.  

The report found that, over the three months to October, home values across the combined capital cities rose by 3.4%, and that combined capital city home values have been trending higher since they reached a low in May last year. They have increased by 10.2% since then.  

Home values across all capital cities have risen by 7.9% over the past year, and, over the 12 months to October, house and unit values have risen by 8.2% and 5.9% respectively.  

Over the past three months, both house and unit values have increased by 3.4%.  



Annual change in dwelling values – year ending Oct ‘13


By Stephen Taylor
Wednesday, 04 December 2013


Is now a Good Time to Buy?

Wednesday, November 13, 2013



According to a recent RP Data survey, 74% believe that now is a good time to buy a property. And Brisbane and Regional Queensland are deemed to be in the Top 4 locations of where to invest.

Conversely, 74% of Sydney-based respondents though that, with the over-heating in the market, now is a good time to be selling Sydney property.

Australia's Top 4 Capital Cities are outperforming our regional areas for capital growth - ANZ Bank

The ANZ Bank recently released findings confirming capital city markets are outperforming regional areas. It said that Australia's non-capital city house price growth has underperformed that of the capital cities since the beginning of 2013.

Great News for QLD Resource Cities

Friday, November 08, 2013

Business confidence in the boom QLD resource cities of Gladstone, Mackay and Emerald has taken a battering over the last 12 to 8 months. But now that the election is behind us and the new Liberal govt is slashing red tape confidence has returned to the regions.

The massive GVK-Hancock coal mine to be built in central QLD has just been given the green light and is staggering in scale. Its very likely for the India funded Adani project to also get approval by early next year. Its estimated that between these 2 unprecedented projects around 25,000 new jobs with be created and should see the rental markets in the regions above go well beyond their former peaks.

Massive central QLD coal mine gets the green light;

Boulder Steel back on;

Over $89 Billion in projects still to commence;

Business confidence bounces back in central QLD;

All investors in  these regions who have seen their rental returns diminish can be confident that Gladstone, Mackay, Emerald and many other cities and towns in Central QLD have a very bright future.

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