The days of your home being an ever-increasing source of capital growth may be over

If you are putting off moving into a retirement community because you are waiting for your house to go up in value, then you may be operating under a flawed assumption.

I came across a great article recently by Leith van Onselen on his blog “The Unconventional Economist”. The article essentially proposes that the baby boomer generation pushed up property prices from the 1990′s as they fell in love with investment properties. Leith argues that as these same boomers sell down their properties (to reduce debt, downsize, or top-up super and fund their retirement) it will cause a corresponding decrease in property values…

Investor appetite for housing began to grow in the 1990s as the Baby Boomer generation began to reach peak earnings age (45 to 55 years). They began buying up investment properties en masse as a way of both minimising their tax (via negative gearing) and ‘saving’ for retirement…But with the Baby Boomers soon to enter retirement, it follows that their appetite for investment properties will shrink, thereby removing one of the key demand-drivers of house price growth. Further, because higher investment yields can be earned by placing their funds in a bank term deposit than can be earned via rent, it is likely that many Baby Boomers will sell their property investments to fund their retirements. This process of property divestment is likely to accelerate once the Baby Boomers realise that there is little prospect of continued high capital appreciation.

Now as a property expert (and owner of residential investment properties), I can tell you that residential properties are not worth holding for their cashflow or yield – the main game is capital growth. In the event that capital growth becomes non-existent, you would be better off placing your money in a bank account than in a residential investment property.

What this portends is that supply (properties for sale) is going to outstrip demand (people wanting to buy properties), which as we all know, results in downward pressure on prices.

So if you are sitting in your 3-4 bedroom home in the suburbs waiting for the value of your property to come back to pre-2007 levels so you can sell up and buy that unit in a retirement community, then you may find you are sitting on an “asset” that continues reduce in value and at the same time, demand more and more cash from your pocket for repairs and maintenance.

Remember, if you sell into a flat market, you also buy into that same flat market. This can work out better financially for you anyway – on the “sell” side, your agents fees are less, as is your capital gains tax if it is an investment property you are selling. On the “buy” side, you pay less stamp duty on a cheaper buy price.

Don’t put it off any longer and make the move today (there’s a new year’s resolution for you!).