There are more record high property prices to come. In this fortnights update we recap the current records of residential property prices and talk about working on your business not in it.
Breaking records
Record high property prices are being achieved across the country but records are going to keep getting broken.
In less than a year since June 2020 when I predicted that we would see record high property prices this has come true, and it is likely prices could continue upwards between 15% to 25% over the next few years.
With all the recent articles in the media about extreme clearance rates, suburb high sales, reserves and listing prices being smashed it is important to remember we talked about this happening and so it should not come as a surprise.
What might be surprising is that while it feels like prices are skyrocketing in reality they are only still marginally above previous record highs and are in reality quite affordable.
The affordable point might sound strange but that refers to the amount of income needed to support typical mortgage repayments.
With interest rates at record lows the mortgage repayment people need to make as a percent of their income is at exceptionally low levels somewhere around 60%. A few years ago, it was 70% or more.
This change in cash for people makes a big difference to them and to the economy as they spend more. And one person’s spending is another person’s income.
Having said that, it has almost never been harder to save for a deposit and buy a property. Even with rents incredibly low it takes years to save a deposit.
In March 2021 Core Logic states Sydney housing property prices increased a huge 3.7% which was the strongest result since October 1988.
If that growth kept going at that rate it would be around a 30% increase just this year alone, but that is unlikely. More likely is that sort of growth over the next 2 to 3 years.
It is helpful to remember that when the media talk the property market as a whole it includes apartments and houses, and the demand and price changes in those as separate markets is wildly varied, plus mixing high level numbers that includes regional and city locations, not to mention including Darwin and Perth in the same bag, dramatically convolutes the headline figures.
One way to read the headline figure the media loves to quote is to recognise it is a muddled number and that the reality is somewhere in the middle between that and what actually happens on the ground.
The trouble is getting a clear picture on the ground as most of it is anecdotal and sentiment or emotionally charged. This is why auction clearance rates by state or territory and drilling down to suburb and area is helpful as we can see a more focused picture of ‘demand’.
A fundamental economic principle is that low supply and high demand means high prices.
But demand is distorted.
This is because there are supply and demand imbalances. The former being much less than the latter. This means that if there is a 90% clearance rate it shows strong demand, but there might have only been a handful of houses on auction that week.
One socioeconomic principle I like to talk about is buying activity – the more buying activity there is the higher prices go.
This is true for basically any asset but especially true for property.
What underpins that principle is rooted deeply in psychology and the studies in ‘loss aversion’ in the current lexicon referred to as ‘FOMO’ or Fear of Missing Out.
We are seeing basically 8/9 out of every 10 homes for sale being sold at auction, and if that is not an example of FOMO in property then I do not know what is.
FOMO is a real force driving buying activity and prices upward.
Now is the time to work on your business
Almost everyone we speak to says some version of “I have never been busier”.
The economy is booming. Partly being led by the surge in property prices and wealth that it generates, but also the freed-up income people have from lower mortgage and rent payments and pent-up demand from being restricted during the virus crisis of 2020 has meant many small businesses are facing growing pains.
So, while you might be busier than ever it is important to take the time to work on your business not just in it. This is especially true when things are busy to ensure that there are not capacity constraints for your business growth.
Here are a few things to think about to help you grow.
Spending time like money
There are 1,440 minutes in each day.
After sleep and life admin you will have roughly 1,000 to spend each day on your business and work and it is critical you spend them wisely.
How much of those time dollars do you spend with customers? On the phone? Driving? Doing admin? Emails?
Try documenting 3 days’ worth of activities in 30-minute increments. This will give you a good sense of where and what you are spending those precious time dollars on and you might see where you can cut back or getting a great return and to double down.
It can cost you a lot to spend those time dollars on the wrong things.
Revisit your 2021 business plan
We are ~40% through the year already.
Time goes quickly and it is important to stay on track. One way to do that is to revisit your yearly business plan at the start of each month. This helps to measure our progress along the predefined objectives and targets we set ourselves and see if we need to course correct.
Well, if you have a business plan that is! If not, now might be the time to make one.
Investing in your business
Take advantage of the most generous tax incentives from the government to help business after the virus crisis.
The instant asset write-off was extended and under this scheme eligible businesses can buy new and used assets and equipment and get back money from the government to offset their tax bill.
For example, if a business buys a car or ute (that carry a load less than 1 ton and 9 people) of up to $59k and get the tax break this year. Other ideas for assets that could be acquired include security systems, printers, food processors and construction equipment.
Another way to get capital back into the business is to re-lease existing assets. If you have a piece of equipment that you own outright you could get it re-financed and get that money back as cash for the business and then pay it back monthly. This is a good way to get capital back from existing assets.
Further, the government guaranteed business loans, while difficult to get, are still available. This can help inject capital into the business for growth.
Capital for cash flow
The old saying you got to spend money to make money still rings true, but sometimes you also need to borrow money to make more money.
Constraints in your business from lack of capital or capital inefficiencies through unoptimised cashflow management or cycles can drag down growth.
If a business is using only cash to pay for bills and things it needs to run and grow then they are limited by how much cash they can generate and actually get paid (on time) from customers.
This is where finance facilities for working capital and growth come in.
Having the right kind of finance product from an overdraft, debtor finance, trade finance or line of credit can make a huge difference to your cashflow. Now is a good time to think about the end of financial year in a couple of months and plan for any lower cash months that winter can bring.
Skyward Financial offers consulting to a select number of business clients so if you want to learn more about on this Let’s Talk.
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