Playing the long game in investment

29 April 2024
Matthew Hughes
SOURCE: The West Australian
JOURNALIST: Owen Raymond
Saturday, 27th April 2024

With the Perth real estate market booming, prospective investors may be wondering if it is too late to commit to a long-term investment property, fearing the best of the market is already behind them. 

It can be risky to commit to a long-term investment during a boom, with the danger of the prices tailing off and leaving your property depreciated in value.

Momentum Wealth Managing Director Damian Collins said, with this in mind, people tended to think they could make some quick cash by flipping or trading properties.

“It’s tempting in a rapidly rising market to be trading property and to be getting in and getting out,” he said.

While money can be made in such a way, Capital Property Advisory Managing Director Matthew Hughes said this was a huge risk.

“In the short term, these is money to be made in Perth across most suburbs, as we are in a scenario currently where a rising tide lifts all boats,” he said. “However, this is an anomaly and something you should not be blinded by.”

For Mr Collins, it is no way to play the property game.

“For more investors, it’s a losing strategy – they end up paying a lot of money on stamp duty and selling costs, and it doesn’t make any sense,” he said. “Property should always be viewed for the majority of investors as a long-term investment, and there’s quite a bit of upside to go in the Perth market.”

Mr Hughes said while prices were currently high, there was still plenty of time to commit to holding a property in the long run, with the Perth market showing no signs of slowdown.

“While we try to avoid being hyperbolic in our market projections, we feel Western Australia is still very undervalued and has plenty of runway in front of it given the current supply and demand dynamics, as well as the lack of new construction taking place to meet future demand,” he said.

“Despite leading the country in growth for the past two years and tracking to lead again in 2024, we are still the second most affordable capital city in the country.”

Likewise, Mr Collins said it was important to maintain a big-picture perspective and remember how the Perth market stacked up to the rest of the nation.

“WA tends to have some pretty dramatic cycles, but certainly at the moment, the horizon looks very good for Perth property,” he said.

“We’re very cheap still, compared to the east coast and we have a fair bit to catch up, so I would certainly suggest being focused on the long term and not treating property as a short-term investment.”

According to Mr Hughes, it is best to hold on to an investment property through at least two growth cycles to offset associated costs.

With property market cycles in Australia historically lasting between seven and 10 years, this means sitting through two growth cycles can be a wait of up to 20 years.

When looking for a long-term investment property, Mr Hughes said it was best to look for established homes in locations where supply was limited.

“For long-term investments, focusing on well-located detached houses can be particularly beneficial, as they offer both land value appreciation and potential to add value via renovation, subdivision or developments,” Mr Hughes said.

“Avoiding buying or building anything new or off-the-plan for investment purposes is also key to success.

“These producs not only include larger developer margins and sales commissions, which you are paying within the purchase price, but they are also heavily weighted towards dwelling value as opposed to land value.

“New house and land packages also appear mostly in fringe suburbs in close proximity to more land supply, meaning it could be years until the area is built out and the supply and demand ratios begin to favour capital growth.”

According to Mr Collins, units can also make for a savvy long-term prospect given their current value.

We’re seeing house prices substantially higher than unit prices,” he said.

“Given the disparity in pricing, there will be a market in the next few years where units will do well, particularly since construction prices have risen and there’s a shortage of them.”

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Written by Terry Rider and Matthew Hughes

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