Despite rising markets, investors are being urged to look at the fundamentals and worst case scenario plan in order to maintain their wealth long-term.
Australia’s COVID-19 property boom is continuing, with national average dwellings price growth rising to 2.2 per cent for the month of May.
With the worst of the pandemic seemingly behind us, bankers are now predicting 15 per cent price growth for Australia’s housing market this year, before macro-prudential measures dramatically slow growth early next year.
But it’s next year’s forecast that has caught pundits off guard, with Westpac revising down its earlier strong growth prediction to a slim 5 per cent in 2022, before the market completely stalls in 2023 with 0 per cent growth.
Despite strong growth in the market, Right Property Group’s Steve Waters and Victor Kumar are urging investors to remain cautious and not take a bulletproof approach to investing in high-risk areas.
“Never invest in a problem you can’t solve,” Mr Kumar warned investors on the Investing Insights podcast.
“You can’t solve floods, you can’t solve bushfires, and if you’re investing in these zones, you’re taking risks.
“If you’re taking that risk, you have to budget for it, so why invest there to begin with,” he said.
Mr Waters warned investors to keep their greed and ego in check, with the current rising market seeing investors take outlandish risks.
“We are seeing the same mistakes this time around as we saw during the GFC,” Mr Waters said.
The duo warned that instead, investors need to take an educated approach to investing, with a long-term time horizon in order to grow a property portfolio.
“They are doing the budget for now instead of holding the property for the future,” Mr Kumar said.
“There are two sides to the equation, growth and cash flow. If you start focusing just on the one side, which is what most people are doing now, looking for growth, [investors] lose sight of the cash flow, and it is very easy to become a statistic when the rates or life moves against you.”
Mr Kumar warned investors that it is easy to become wealthy, but holding the wealth longer-term is an issue for most investors.
“But the ability to retain it over a generation is lacking because it is not planned forward and not looking at it from a worst case scenario,” he concluded.