Investment Expert Weighs in on Property Market Future

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( — November 11, 2018) — The residential property market in Australia has been confusing lately. Investors and investment analysts all seem to have their theories about its future as property values, long known to be inflated to the degree where fears of a bubble seemed justified, have begun to tumble. Investment specialist Matthew Mousa of TLK Partners shares his outlook on the future of the property market as an investment vehicle.

A Conservative View

Analysts have foretold several possible scenarios for the future of property in Australia. Mousa advises caution in taking any of them as certain outcomes. “Nobody can foretell the future. We can and should look at possible scenarios, but in reality, the most extreme predictions, either positive or negative, rarely materialise.”

Just how troubled we are by fears of a property market collapse would depend on our exposure in that asset class and the investment outcomes we’re pursuing. “If your only investment is your property, then theoretically, you could face a big dent in your net worth. But if that property is your primary residence, its investment value is secondary to its practical value. You aren’t planning to sell it anyway.”

In markets, there’s constant movement around a point of equilibrium. Mousa explains that if we look at short-term value losses, we could be alarmed, but they will invariably overcorrect before moving back towards equilibrium. Property values, once inflated, will dip below their true value before making a recovery.

International Market Uncertainty

At TLK Partners, Mousa and his team work to balance portfolios, spreading investments across different assets, including property, to reduce risk. “We have to ask ourselves how to replace property as an element in investment portfolios. We haven’t done so. We’ve just restructured the type of property exposure our clients have.”

He points out that the international investment environment is volatile at the moment. “I don’t think we should be expecting strong growth in any sector right now,” says Mousa. “Our aim is to ride out a turbulent time. Younger investors can just wait it out. Markets will recover. Structuring portfolios for investors who need to realise regular income is a little more complicated.”

Property Investment Now and in the Next Few Years

TLK Partners has been quick to spot and take advantage of a property market anomaly. “The residential property market could keep sinking by as much as 20 percent, or it could recover somewhat in just a few months based on undiminished demand. I’m inclined to subscribe to a middle-road point of view, but either way, it will be a tough market with low growth in the next few years.”

“However, commercial property, particularly industrial property, has been performing much better than expected, so we are currently structuring the property portion of our clients’ asset portfolios with increased exposure to commercial property. We believe that this represents a prudent way to retain property exposure in a balanced portfolio.

Not a Good Time to Take Risks

It’s not a good time to gamble in the property market, or indeed, any other market, says Mousa. He doesn’t believe that investors should expect high yields from investments in the current economic climate and he warns prospective investors against any investment promising high yields. “High yields mean greater risk. So, you could get those returns, but there’s also a high probability of losing out completely. In the current environment, risk is magnified.”

As far as property goes, domestic property isn’t a great investment for the time being. Even in best-case scenarios, growth may be some time in coming. Commercial property is a better investment, but Mr Mousa stresses the difference between a home and an investment property.

“If you’re buying a home you and your family are likely to live in for the next twenty years or so it’s not the same as buying into a property consortium as an investment,” he points out. “The cost of credit is bound to rise, so theoretically, at least, the next 12 months could be the cheapest you’ll get a property in the next decades.”

TLK Partners are wealth advisers serving enterprises and private individuals who hope to take care of their future through sound financial management. Visit their Property Acquisition Division webpage or contact them at (02) 8090 4324 for an appointment to discuss your financial management and investment needs.

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This material is of a general nature only, it does not take into consideration your financial circumstances, needs or objectives. Before making any decision based on this content, you should assess your own circumstances, seek professional advice or contact our office to be directed to the appropriate professional. Whilst all care has been taken in presenting the material neither TLK Partners or its associated entities guarantee that the material is free of error and, the information may have changed since being published.

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