At Solid Group we believe that over the longer term residential property will provide investors with an average 4%-6% total return over inflation. With inflation of 2%-3%, the expected total return is a total of 6%-9%.
At Solid Group we believe that over the longer term residential property will provide investors with a total of 6-9% of annual growth over inflation.
We remain conservative in the short term as we expect the growth to be less than 2013, which was one of the strongest years in the last decade. The average was 9.8% across the major cities with Sydney and Melbourne growing by 14.9% and 9.9% respectively for the twelve months ending December 2013. [Source RP Data].
In addition, while property as a whole is expected to be in an upside cycle it should be noted that it is a fragmented market, with different states, different price points and different types of properties performing independently. As such different results can apply to individual “sub” markets.
Key factors for our positive outlook include, doubling in the rate of population growth (about 416,000 people per annum), low interest rates and the scope for the economy to pickup further in the latter part of the year.
While we are conservative on property in the near term, we do believe that a property bubble-burst will not occur. A housing bubble-burst, in our opinion, would be caused by several large external shocks occurring.
These would include:
High unemployment – Say a jump to 11% or 12%; unlikely to happen in the foreseeable future and would be uncharacteristic of past trends.
High interest rates that would cause a very large raft of defaults – Unlikely to happen in the foreseeable future, and once again would be uncharacteristic of the past decade.
A severe recession/depression – While economic data suggests a possible slowing down in some states, the general economic outlook for Australia in the short is for positive economic growth of around 2% to 3%, depending on the bullishness of the analysts and economists.
A severe oversupply of property – This is a possibility in a few isolated markets but there is still an undersupply particularly when considering the population growth. We also view the investor market as separate from the residential market.
The residential market is more sentiment driven in the early phases of a bubble, however with strengthening of the investor market, off the back of the residential market, a spike does appear in the uptake of property investing as in this asset class.
Nick Stratus, Solid Financial Advisers, 13 March 2014