It’s the dream of many an aspiring property investor: buy when the market is low and sell right as it peaks a few years later. But is short-term speculative property investing really all it’s cracked up to be?
Historically, Australian real estate has delivered strong returns on average over the long term but also experienced sharp contractions over the short term. That’s just one reason why investing in property in the hopes of a fast return could see you left disappointed and out of pocket.
To earn a profit, you could be in it for the long haul
As the table below shows, median house prices in Australia’s seven biggest capital cities grew by an annual average of about 7.5% between 1973 and 2019 (based on comparisons of 1973 prices in a Department of Parliamentary Services report with June 2019 ABS data):
| City | 1973 | 2019 | Total change | Annual change |
| Sydney | $27,400 | $875,000 | 3,093% | 7.8% |
| Melbourne | $19,800 | $680,000 | 3,334% | 8.0% |
| Brisbane | $17,500 | $535,000 | 2,957% | 7.7% |
| Adelaide | $16,250 | $470,000 | 2,792% | 7.6% |
| Perth | $18,850 | $480,000 | 2,446% | 7.3% |
| Hobart | $15,200 | $490,000 | 3,124% | 7.8% |
| Canberra | $26,850 | $714,000 | 2,559% | 7.4% |
While these growth averages highlight the potential of property as a solid long-term investment, the shorter-term results aren’t so promising.
For example, Australia’s two biggest real estate markets, Sydney and Melbourne, have only recently ended a two-year slump, while Perth and Darwin are still heading backwards after five years of price falls.
Nationally, home values remain 4.1% below their 2017 peak, according to the CoreLogic November Home Value Index. This means some people who invested in real estate over the past few years may be holding property that is worth less than they paid for it. If those people were to sell today, it would be at a loss.
It’s also worth noting that not all property grows at the market average – some homes experience above-average growth and others below-average growth. That’s another reason why it can be a risky tactic to try to ‘time the market’ and make investment decisions based purely on general predictions.
Consider the short-term costs
Even if you are one of the lucky ones with a property that experiences short-term capital growth, the potential profits can quickly be eaten up by expenses like:
- Buying costs – stamp duty, conveyancing, building, pest and strata reports
- Holding costs – mortgage repayments, council rates, land tax, strata rates, maintenance and repairs
- Selling costs – agent fees, marketing fees, conveyancing and capital gains tax
Factoring in these costs, a property would have to rise significantly in value over a short-term period to be able to sell it at a true profit in just a few years.
Is property the right investment for you?
While investing in property can deliver financial benefits through capital growth and rental income, these benefits are usually realised over the long term.
The high costs of buying, holding and selling property, the difficulty in accurately predicting market peaks and troughs, and the variation in individual property values makes short-term speculative investing a risky strategy.
So if you’re thinking about taking the plunge, consider how buying an investment property fits into both your immediate situation and your long-term financial plans.