Your capital growth strategy is about to expire… BUT you still have time to change that.
I’ll tell you why.
We aren’t sure what the market will do in the next 12 months. What we do know is that the financial landscape is changing, and it’s getting harder for property investors to invest. We also know that some experts are predicting the sustained growth we’ve had in the housing market won’t continue past 2017.
Here’s what will happen –
- Uninformed investors will continue with the bullish “assumed growth” strategy we have been able to benefit from for the past few years. But if the market growth slows or goes backwards, interest rates could rise significantly. If interest rates rise, you could have difficulty servicing your mortgage. If you can’t service your mortgage and you’re forced to sell at a time when property values have gone down… then it’s going to hurt.
- Meanwhile, savvy investors are changing their strategy now… before it’s too late.
I’m going to put this out on the table and bet your capital growth strategy is only suitable for a rising market. I’m also going to bet your investment strategy for a market downturn is to forget about growth and focus almost entirely on cash flow.
Am I right in either (or both) of these?
If so, your portfolio’s capital growth prospects for the next 5 – 10 years are dwindling.
Are we saying there will be zero capital growth over the next few years? Not at all… but the growth will be highly localised.
We call this “micro-pocket growth” because as we have established, the Auckland effect won’t happen again for 5 to potentially 10 more years.
We now need to look towards certain suburbs that have their own unique set of drivers that will drive prices up faster than anything around them.
It’s not just suburb wide either. These micro-pockets of growth can be just a few streets in a suburb, or a developing area. Here are four examples of when a “micro-pocket” can occur:
1. Luxury market split
Often, you’ll see a split between the “luxury” market and the “normal” market, like in Auckland, where properties worth over $1.5 million are still achieving exorbitant growth though the “normal” market has softened.
2. “Best suburb” trend-buckers
A suburb (or a cluster of suburbs) where tenant and buyer demand doesn’t ease off with the general trend. These are the kinds of areas people always want to live in, so owner-occupier demand continues to push values.
3. Developing areas
Regardless of what the market is doing in general, intense development and infrastructure spend can see an area transform into a desirable place to live. This will often see these previously lower-than-average house price areas experience growth. A great example of this might be Hobsonville in Auckland, which is expected to see a 208% increase in population by 2023.
4. Flight to Quality
This is a basic concept: people want to live in nice homes. Owner occupiers are emotional buyers, and they look for different qualities in a property than an investor would. They are also prepared to pay top dollar regardless of market trends, whereas investors will cap their budget where the numbers stop looking good.
Come along to a Property Investor Night and we’ll explain in greater depth what these micro-pockets are all about.
When you come along to a Property Investor Night, you’ll also get an invitation to attend one of our client-only workshops where we’ll be teaching our clients about investment strategy in greater detail.
You can also “spy on us” and ask our clients if we’re any good at what we do too. Book your seat now and I look forward to meeting you there.
Image Credit: unsplash.
Disclaimer: All information provided is of a general nature only and does not constitute professional advice. Seek advice from licensed professionals to see if advertised results are possible for your situation.