Since the subprime crisis became widely apparent in mid 2007 opinions have, more than ever (if that’s possible!), been divided about the future of the Australian housing market. Predictions from the full spectrum of property forecasters, spruikers, academics, economists and commentators have ranged from the ridiculous to the sublime.

Where is the truth then?

In most cases the truth sits in a grey area somewhere between the extreme forecasts. What is nearly certain is that property prices on average may not grow at anything like the rate we have been used to.  The market as a whole may be nearing the end of a long 40 year cycle, which is not to say that individual properties will not perform very well.  That’s why at Pulse Property we believe that it is more important now than ever to use quality research if thinking of investing in real estate.

It seems that the global appetite for credit is about to revert to a more sustainable level. What is more likely to happen now is a slower rate of increase in property prices over the medium to long term and rental yields are likely to make up a higher proportion of the total return for investors. In the past, periods such as these have been characterized by rental yields averaging seven to nine percent. This is something that we can live with!

In the news this morning, economic and business forecasters BIS Shrapnel have predicted that house prices in Sydney will rise by up to 22% over the next three years due to low interest rates, solid growth in rents and housing shortages. Melbourne and Adelaide are also expected to show similar levels of growth performance. While this growth is unspectacular compared to what we have grown accustomed to over the last decade, it is a reasonable estimate of the kind of returns we can expect given the investment landscape. When rental yields are factored in, this ends up being quite a tidy investment return, especially as it is difficult to see any competing asset classes offering a similar return to property with less risk.

As the global economy recovers, higher levels of inflation will also become a characteristic around the world, this includes Australia. While inflation is commonly perceived to be a bad thing, it can just as easily be your friend! An enormous level of wealth transference happens during the period in which we have entered, much of this is due to inflation. The good news is that it is during hard times that billionaires are made. As Nathan Rothschild said during the time of Napoleons defeat at Waterloo “The time to buy is when blood is running on the street”. It is widely accepted that it is during this period where he took control of the British bond market and set up what has been called “the age of the Rothschilds”. While his character is certainly questionable, it is undeniable that he understood fully the mechanics of wealth creation and became one of the wealthiest men in history.

As we move forward, property may well prove to be one of the best inflation hedges in the coming period. As such, it may become an invaluable tool to help preserve your wealth and make sure that the wealth that is being transferred ends up in your pocket!

If you would like to know more about the current market conditions and where you should be investing, click the links below.  Through our relationship with Pulse Property we have arranged a special invitation for you to attend one of their events in Sydney, Melbourne or Brisbane.  These events are highly informative and educational and we would encourage you to go along.

To register simply click on one of these links

Sydney - http://www.pulseproperty.com.au/events/event/35

Melbourne - http://www.pulseproperty.com.au/events/event/41

Brisbane - http://www.pulseproperty.com.au/events/event/42

This article was written by by Gavin Chau, Head of Research of Pulse Property Research.