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Timing the Market

One of Brad Teal’s favourite insights into the property market, comes from an old cartoon.

It depicts an old man sitting on a park bench with his walking stick and a bag bulging with money.

A passer-by asks what he’s doing.

The old man replies: “I’m waiting for the property market to drop.”

To Mr Teal, a veteran of the real estate industry, it’s a salutary lesson for prospective buyers.

“It’s ‘Time in the market’, not a matter of `timing of the market’,” he says firmly.

“The longer you are in the market, the more time you have to benefit from the cycle of property growth. It can flatten, then drop, then grow and flatten again.

“But these days, the cycles are shaped more like chocolate eclairs, than cream puffs,” he explains. “They are longer and have pretty short, sharp drops and then they’re straight up again.”

Mr Teal says he would once talk to buyers about the prospect of doubling their money on a property purchase every seven years, at 10 percent compound growth. But today, home owners are more likely to double their investment every 10 to 12 years.

“If you’re trying to pick the highs and lows of the property market, you will find it very challenging,” he says.

“What you want to do is reap the rewards of multiple cycles.”

CoreLogic’s latest quarterly Pain and Gain report reveals the strength of the current property market for sellers. Tight listings, record low mortgage rates and extraordinary growth in housing values have led to strong resale gains for vendors, particularly in regional and tree-change markets, it reports.

Nationally, profit-making residential sales have increased for four consecutive quarters. The typical median hold period on all resales for the quarter was 8.8 years, with the national median gross resale profit hitting $265,000.

CoreLogic Head of Research Eliza Owen says the data revealed property owners reselling after only two years pocketed a median return of $123,000, but for those who cashed in after 30 years of holding a property, the median return was $712,000.

“Such high levels of profitability may start to encourage vendor participation and bring down typical hold periods, especially as major cities navigate a path out of 2021 lockdowns,” she says.

Regional vendors continue to achieve the highest instances of profitability. For example, in Ballarat, 99.7 percent of resales in the June quarter achieved profitable results.

In Melbourne, the exception to the profitability gains were found in the inner suburbs. According to CoreLogic’s analysis of local government area housing markets, inner city suburbs in Melbourne recorded a rate of 34.8 percent loss making resales.

Mr Teal maintains buyers who think of property as a long-term investment are more likely to maximise returns.  In the current market, he describes the three-bedroom home in a good suburb as the “modern version of a collectible car, or coin.”

“Take a three-bedroom house, plus study, on a 600-700sqms, with a garage, maybe a pool, an updated kitchen and a family room – they are incredibly popular because people are embedding their wealth now in their principal place of residence.

He goes on to paint the long-term scenario of buying a “collectible” home: “Let’s set our ourselves up in a tax-free haven, called the principal place or residence. And when we get on top of our mortgage and our kids have stopped schooling and are off our hands, we can then sell with an enormous asset base and go and invest, or trade down, at that point of time,” he explains.

“People are selling in Melbourne for $3million and going down the coast for $1.5million.”

Mr Teal encourages older sellers to look closely at the Federal Government’s advantageous downsizer contribution policy which allows a one-off, post-tax contribution to super of up to $300,000 for each member of a couple who sell their main residence to downsize to an apartment or villa, or move to a cheaper area.

“An example is, a couple selling in Essendon for $2million and buying in Ballarat for $1.2 million. If they have been in their home for at least ten years, the majority of that profit can be shifted into their superannuation funds and the investment return only gets taxed at 15 percent in the dollar, not at your marginal rate,” Mr Teal explains.