This Important Statisic Can Help You Minimise Your Risk In Australian Property
Given what is happening in the world at the moment and how turbulent things are it’s important to look at ways to minimise your risk if you’re looking to invest in property.
One data point is the dwelling value to income ratio and in this episode we look at how this may present risk factors or may present opportunity and lower risk.
Core Logic’s March 2020 Update: https://www.youtube.com/watch?v=KAcy6IvYaeY
given what is happening in the world at the moment and how turbulent things are if you’re looking to take advantage of these times if you’re looking to pick up a great investment during these times i do think it’s really important that you look at ways to minimize your risk given the volatility that’s in the market at the moment so in this episode i’m going to talk about the dwelling value to income ratio so how expensive is a property in a city compared to how much people actually earn per year and look at that and how that may present risk factors or may actually present opportunity and lower risk so hey i’m ryan from onproperty helping you achieve financial freedom and it is no surprise to a lot of people out there that australia and sydney and melbourne in particular arranges some as some of the most expensive cities to live in in the world now if you think of sydney you think of okay the biggest cities in the world the most affluent sydney cities in the world do you think of sydney do you think in melbourne i guess in australia we see ourselves as small players on the global market but looking at sydney here as the second most expensive city in the world compared to hong kong looking at melbourne here as number five and you start to see other cities like los angeles and san francisco and london is that so but do we really belong in this list there’s another thing here of the 10 most least affordable cities and again you’ve got melbourne here number four and sydney here at number three you then got canada their markets going crazy and then you’ve got hong kong which is extremely expensive because of huge population limited land size availability and the way that policy works that governments rent out land to developers and so very expensive in hong kong do we really have a place here on this list and i’ve recently been watching core logics monthly update if you haven’t checked it out you really should i’ll link it up down below and i often do videos kind of talking about the monthly update and where we’re at but what i wanted to go through is some of the data and some of the trend lines that we can see here and how this may affect your risk and where you may want to invest so instantly we can see here sydney and melbourne are the highest on the list with the name being 8.5 times dwelling value to income ratio so what that means is how much do people earn on average per year and how many multiples of that is required in order to buy a property so in sydney what’s the average income per year 8.5 times that or eight and a half years income is how expensive it is to buy a house melbourne 7.4 hobarts 6.5 adelaide 6.1 brisbane is 5.9 and darlin all the way down here at 3.4 so you can start to pull some really interesting information from this firstly you look at the cities on this list what i would personally expect is this to go from top to bottom in order of the most populous cities and the ones where people earned the most money so you think sydney that makes sense melbourne then you would expect brisbane to be next however next we have hobart which is quite a small city much much smaller than brisbane but hobart is actually less affordable than brisbane why is that great question why is that and so you start to look at that and you say okay does hobart pose a risk a lot of people have been asking me about what i think about the tasmania market what i think about hobart kind of been saying this since last year that hobart has had this incredible run up and even when sydney and melbourne went through the decline and you can see adelaide and brisbane were affected by that with smaller downward trends hobart just continued to rise compared to income ratio just continued to rise in general and has gone up and up and up and up and you start to think to yourself okay is this consistent upward trend line sustainable or have we actually reached a place where it’s unsustainable and it’s going to go down so hobart for me poses a risk there because i feel like it’s higher than it should be compared to other cities and i’m not exactly sure why hobart has gone so well as well you start to look at let’s let’s look back in history and look at the trend lines of the past we can say what’s what’s this line adelaide here no this is sydney sorry so we can say sydney went up and up and up and up to about eight times and then we saw a decline in sydney and then it’s gone up and up and up and we’ve seen a decline same here we’ve seen some peaks in melbourne Then declines, peaks, and then declines, you never really just see it go up and up and up to the right, you always start to see these declines. Darwin had a massive run out, as you can see, and then it’s had a huge decline over the years, Perth has kind of, I guess it Oh, that’s AC T, sorry, AC T has kind of been quite stable. So you start to see these sorts of trends that if it even has a huge run up, I’ll look at Perth here. Perth had this big, big run up, and then has had a decline. And as we know, Perth has been declining for quite some time now. So you look at that, and you look at Okay, is this sustainable? What is going on here? And how is this going to affect my risk of investing in this particular city? So for me, I look at Sydney and Melbourne, the fact that they’ve had a decline is good. But Sydney and Melbourne, as we know from the data of Melbourne has actually gone over, it’s 27 peaks. So it’s actually increased above its 27 peaks, this data only goes back to September 2019. Or does it go until today, I’m not actually sure, maybe this is February’s data. But we know that Melbourne has actually gone past as 27 peaks. So it’s more expensive now than it ever has been. Sydney is approaching its 27 Peak, as well. So even though it’s had a decline, it’s gone right back up again. And that may not be reflected here in the data. And so I started to think to myself, how does this pose a risk? Yes, it could go up even more and could continue to grow. But is it going to reach a point where it’s grown too much? And then it’s going to contract again? And is that growth sustainable? And then you look at somewhere like Brisbane, and you can say that it’s kind of just like trudged along, for the last 10 years, really, and hasn’t really gone up in value much. In fact, they say that Brisbane is now cheaper to buy than it was something like 12 or 13 years ago, if you factor in inflation. And so you start to look at that. And you say, okay, Brisbane is a big city, it’s a popular city, people are moving to Brisbane, it’s got good incomes, compared to Sydney and Melbourne. It’s got desirable weather, Australians are migrating there. It’s meant to be the size, I think of Sydney, or Melbourne in 2050, or something like that. And so it’s got growth potential in terms of population growth as well. But it hasn’t had that big run up and down, I start to think, okay, maybe this looks less risky to me, because housing is still quite affordable there. So it’s got room to go up and less chance of declining. And this is just one data point that you want to take in, among many different data points. You also want to consider, okay, what’s the long term growth potential of this city? Obviously, on this list, Darwin’s gone up and then come down has bottomed out yet? We don’t know. They’re talking about Perth, maybe having bottomed out now. But then you also have to look at, okay, what size is the city? And what’s the long term potential of this city? If you’re looking at investing? If you’re looking at achieving certain financial goals? By investing in property, then you got to start to think, Okay, how do I expect this city to perform over the next 10 1520 years, and for me, it’s less about, Okay, I need to find the exact best city that’s going to perform the exact best in the next 12 months or the next 24 months, or even the next 15 years, it’s more of like, I have a financial goal that I want to achieve, which city can I buy a property in, that meets my risk profile, so I can lower my risk as much as possible, has potential upside has stability over the long term, and then also has the cash flow that I want, so that I can pay my mortgage in the short term that I can get positive cash flow, ideally, and then I can continue to hold this property into the long term, which is where I’m going to achieve my financial freedom. So I kind of take all of these factors into account. And dwelling value to income ratio is just one figure. It’s just one factor to take into account among so many others to look at how risky is this city? And is this somewhere that I want to invest? And then you get down to the suburb level from there as well. If you do want more granular details on how to research suburbs, how to find out what suburbs in an area look to be lower risk and have a higher chance of return. Then I’ve done a full course on Advanced Suburb Research and how you can actually pull those data points together, how you can compare suburbs to each other and start to work out okay, what suburb suits my property investment goals. So if you go to onproperty.com.au, forward slash suberb, you can learn all about that course over there and sign up if that’s something that you’re interested in learning and building out that skill so that you can look at something burbs minimize your risk on the downside but also maximize your chance of return and get the investment that you want because recessions because what’s happening globally health wise can actually present huge opportunities to get properties that long term are going to move you towards your financial goals so this can actually be a really exciting time for people who are in the right position to buy and take advantage of current market conditions you’ve also got less people in the market so you’ve got more ability to negotiate and more time to actually find the property that’s exactly right for you without having to compromise so it can actually be a really good time to be out there looking at property but it’s not just a time to go out and buy everything because everything is going to go up you know the rising tide lifts all boats it’s a time to really do your research really understand the market really lower your risk and really buy something that suits you and suits your goals so again if you want to check out that course go to onproperty.com.au forward slash suburb otherwise there’s a bunch of free videos on this channel where we talk about how to do this sort of research and i’ll be doing more in the future so make sure you subscribe to the channel so you don’t miss an update thanks so much for tuning in make sure you check out this dwelling value to income ratio take that into account as one factor among many when you’re looking at where you want to buy investment property consider so many other things as well but definitely consider this and whether or not the city that you’re looking at investing in is higher risk or lower risk and if it suits your needs so wish you the absolute best out there and until next time stay positive