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Is it a myth that Perth property prices will double every 10 years?

14 September 2016
Anyone with an interest in real estate is sure to have heard this before “property values double every ten years’’.
 
Is that true or is it just one of the great real estate myths?
 
While in past decades that phrase may have rung true, according to analyst Michael Matusik of Matusik Insights it’s unlikely to be the case now.
 
He’s run the figures, using nominal annual growth rates, on how median prices in capital city markets have fared in the past decade and found at that rate only two would fit into the “double your money category’’.
 
In the house market between 2006 and 2016 it would have taken 10.4 years to double your money in the Sydney or Melbourne.
 
In Adelaide it was likely to take 16.3 years, Canberra, 17.6 years, Darwin 17.9 years, Brisbane 19.7 years and Hobart 21.4 years.
 
Perth blew all them out of the water with it estimated to take a whopping 171.4 years to double your property’s value based on how the market performed in the past ten years.
 
Mr Matusik said the Perth result was “shocking’’ but that was because its prices went up extremely high between 2006 and 2013 and then dropped between 25 and 30 per cent.
 
“The important point with Perth is, and all those markets, that they will get to a stage where they correct themselves and that’s going to happen.’’
 
The time it takes to double the value of your property varies widely between capital cities.
 
Mr Matusik said in previous decades the theory had been true about doubling your money, but the market had changed and he doubted it would change back.
 
“It is something that particularly in the lead up to 2008 particularly in Queensland and the two decades before that it probably rang very true,’’ he said.
 
He said interest rates during that period fell to low levels, properties were undervalued, particularly in 1999 and 2000 and property values were relatively low compared to incomes.
 
“We had some undersupply of stock, we had a lot more jobs being created,’’ he said.
Mr Matusik said all those things had helped push prices in the past.
 
Investors looking for a quick capital gain may have to buy a property they can add value to, through renovation.
 
He said in the current market investors looking for a quick capital gain may have to think again.
“If you are buying because you think you are going to have quick capital gains, I think you might be a little disappointed,’’ he said.
 
“If you are going to do that you want to buy something that you can improve, so if you buy something older and you are going to have to put a lot of sweat and muscle into it to increase its value.
 
Mr Matusik said the next decade for property investment would be more about yields — the rental returns on investment — not so much capital gains.
 
“What happen in last twenty years I don’t think is going to happen in the next twenty.’’

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