Practical Alternatives to Housing Depression Fears

Sack Your Financial Planner - my 2008 book
Sack Your Financial Planner - my 2008 book

Introduction to Australian Economic Predictions

Economic predictions abound at the moment, with Harry Dent touring Australia. However you look at it – perhaps Harry sells more books and persuades us to his way of thinking – what this fear-mongering does is make people jittery and stall buying for investment.

Don’t get set to fulfill the prophecy – Australian property (overall) is not about to plummet 40-50%, as Michael Yardney argues in this article.

Our interest rate is not rock bottom, while the USA is nearing zero. This means that the RBA has some leverage; they can lower interest rates when times get tough. (Cash rate is 4.75%; see recent rates at http://www.rba.gov.au/statistics/cash-rate.html)

While a global crisis may be getting closer, we’re not even focusing on the right things… arguing over whether we should have a carbon tax, the rising cost of living, etc. We are, as ever, negatively focussed on the difficulties that affect the poor. While economic prosperity usually flows from increasing wealth and business success.

If you take your money out of international and Australian shares, as normally we want to do when the world gets jittery, where is it going to be put? Gold and silver are part of their own bubble, so they are probably not a ‘safe haven’. Well, let’s pretend we’re our grandparents. It makes sense to invest securely in these times.

Look at the overall housing market on this 11-Year Asset comparison Chart created by Christopher Joye. It seems Australian Government bonds haven’t done too badly (nice an' safe too) while the residential housing market has offered stable growth, as ever.

www.propertyupdate.com.au/oz-housing-market-outperforms-shares-with-significantly-less-risk.html

Property - the Wealthy Person’s Safety Net?

In fact, many of Australia’s millionaires have been created on the back of housing. It’s obviously not going to have the sort of rises we’ve seen in 2003-2007, but remember there are other ways to add value to property and profit from property. Here are some varied strategies:

  • Buy option on property and sell to higher bidder later when values have risen
  • Renovate and flip (sell for profit)
  • Renovate and hold (good in a slow market; enabling owners to increase the rent and create instant equity)
  • Buy large sections in upcoming suburbs and split, sell with DA or build yourself

If you own a farm near a mining district, you could also buy a small moveable home (with Council approval), make it nice and rent it out. My parents in New Zealand rent out small cabins to permanent tenants, and it's a great strategy because they have no debt on the farm.

When you’re worried about Property Price Falls or Sharemarket Falls, it pays to remember this quote:

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." – Warren Buffet

And if you look at the value of Berkshire Hathaway shares, it appears Warren and Charlie have prospered through many uncertain times with that motto in mind.

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