Despite widespread pessimism surrounding the Australian property market, seasoned investors are still building wealth by focusing on long-term fundamentals rather than short-term fluctuations, according to buyer's agent Paul Glossop. Glossop, founder of Pure Property Investment, argues that recent changes to negative gearing and capital gains tax, alongside rising interest rates, have been overstated in their impact on the market's core dynamics.
"I hear every month that property isn't worth it anymore. I understand why, but I also think it's wrong," Glossop stated. He explained that the primary drivers of property value have always been the demand for housing and the available supply, factors he believes will continue to dictate price growth.
The expert noted that while changes to capital gains tax, such as the new indexation method, might slightly increase the tax paid upon selling a profitable property, their long-term effect is expected to be modest. Similarly, Glossop clarified that negative gearing benefits have not been eliminated but rather modified, allowing losses to be carried forward to offset future taxable income once a property becomes cash-flow positive. This reinforces the notion that property investment is best approached as a long-term strategy.
Glossop suggested that recent years, which saw rapid property value increases during the pandemic, may have distorted investor expectations. He emphasized that these periods of quick gains are not the norm and that a more realistic investment horizon should be between seven to 15 years to experience a full cycle of property growth.
Historical data supports this long-term perspective, with Australian residential property delivering average annual growth of approximately 5.5 to 7.5 percent over the past three decades. Glossop illustrated this with an example: a $600,000 investment property could potentially double in value to $1.2 million over 15 years if it experiences an average annual growth of six percent. The power of leverage, he added, allows investors to benefit from growth on the entire asset value, not just their initial deposit.
Housing Shortage as a Key Driver
While tax reforms and interest rates have dominated public discussion, Glossop highlighted Australia's housing shortage as a more significant factor influencing the market. He pointed to the National Housing Accord's target of 1.2 million new homes, noting that construction is falling considerably short of this goal. Compounded by population growth and a trend of fewer people per household, the imbalance between demand and supply is expected to persist.
Glossop also warned that declining property prices can exacerbate the supply issue, as developers may reduce building activity if projects become financially unviable. He suggested that government intervention, such as direct building or developer incentives like tax breaks, might be necessary to address the shortfall.
Shifting Investment Strategies
Glossop advised investors against solely pursuing expensive, traditionally high-performing, expensive suburbs. Instead, he recommended focusing on more affordable areas with higher yields that support long-term holding. This strategy also aligns with the appeal of 'rentvesting,' where individuals invest in more affordable locations while continuing to rent in their desired residential areas.
Despite market uncertainties, Glossop identified parts of Victoria, including Melbourne's south-east, Frankston, Geelong, and Ballarat, as areas with strong long-term investment potential. He cited their affordability, ongoing infrastructure development, and limited housing supply as key advantages. He also noted that many Victorians are recognizing better property opportunities within the state.
For those discouraged by current market conditions, Glossop urged a broader perspective, reminding them of property's historical resilience through various economic downturns, including recessions, the Global Financial Crisis, and previous regulatory changes. He suggested that these periods of volatility often present significant buying opportunities that typically last between six to 18 months, and that long-term averages tend to revert to the mean.