2022 Predictions and Planning: Part 1

It is stating the obvious to say that goal setting is important. The fact is, if you aim at nothing, often that is exactly what you will achieve; nothing! Each year my wife and I set personal, relationship, business and financial goals. We almost always achieve all the goals we set for ourselves each year. I want to share the process which we’ve just completed and share what I think 2022 might bring us investment-opportunity-wise, as this will help you set realistic goals. Part 1: Investment risks and opportunities that 2022 might bring On one hand, you should never let markets dictate your investment strategy or decisions. Market sentiment almost always reflected short-term fears and greed – neither of which are any use when making long-term financial decisions. However, understanding markets is helpful in prioritising which goals are most important to implement in the next 12 months. For example, if you plan to invest in shares and property, but feel shares are wildly over-valued, then you could conclude to invest in property in 2022 and reconsider shares in 2023. Therefore, I think it is useful to consider what opportunities and risks markets might present during 2022. Australian property market in 2022 The challenge with forming a view on the property market is that the past 12 months has been influenced by very slow supply i.e. fewer investment grade houses for sale. As such, some buyers have been driven by FOMO and been prepared to overpay for property just to “get into the market”. Listings in Brisbane are about one third below their usual volume and stock levels in Melbourne and Sydney are also lower, although certainly not to the same extent as Brisbane. Listing numbers in regional locations, particularly beach-side locations, are also chronically low. If supply remains tight i.e. there are fewer properties than there are buyers, property prices will continue to appreciate, albeit at a slower rate than in 2021. Supply will eventually increase because higher prices encourage more sellers to come to market. However, I don’t think that will happen until the Covid risk disappears. Of course, no one knows when that will happen! Price becomes more important the further you move down the quality scale For the sake of this example, let’s assume that Covid evaporates over the course of 2022 and that 2023 brings us a normalised property market i.e. supply returns to normal levels. It is very possible that we may see prices pull back by 5-10%. That’s because there is no longer any pressure to overpay to buy a property. For example, properties that were selling for $1.2-1.3m range may sell for $1.1-1.2m range, which may fairly represent their intrinsic value. If this happens, people that overpaid for property in 2021 might find themselves in a paper-loss position for a short period of time. In short, the consequence of overpaying could be that you accumulate very little equity in your property over the first few (2-4) years of ownership. If you plan to buy a property (e.g. a home) in a non-investment-grade location, then it is increasingly important to not overpay for property. The further down the quality scale you move, the more the price/value assessment becomes. That’s because high-quality, investment-grade locations tend to benefit from strong price appreciation, and this strong growth quickly makes up for the financial impact of overpaying. However, in lower growth locations, the consequence of overpaying can sting for many years. I must highlight that when buying an investment-grade property, the quality of the proper Read Stuart's latest book? He's only got 19 reviews on Amazon so far, if Wealth by Design helped you, leaving one would mean a lot: https://www.amazon.com.au/review/create-review?asin=192318654X Run your own business? Check out Business by Design, Stuart and Mena's show on starting, growing and exiting a business, at https://www.businessbydesignpodcast.com/ Our most popular free guides: Over the years we've written hundreds of articles. These three bring our best thinking together on the topics that matter most right now: choosing a super fund, debt recycling, and navigating the new tax changes. Download them here Got a question for the podcast? Email us at [email protected] Subscribe to my weekly blog: Stay connected here Important This podcast provides general information about finance, tax and credit. It doesn't take into account your specific objectives, financial situation or needs, so you need to assess whether it's relevant to your circumstances before acting on it. If you're not sure, speak to a licensed, trustworthy professional.