As the baby boomer generation retires, investors should not assume their properties will continue growing in value, according to a well-known property mentor.
Kevin Lee, founder of Smart Property Adviser, said Australia was undergoing a never-before-seen demographic shift.
Mr Lee said between January 2012 and December 2020, 5.4 million Australians are expected to reach the age of 65 and retire.
“If they were working, they exited the workforce, they exited the tax base, they exited the compulsory superannuation funds as a contributor and they also exited the stock market - because most superannuation monies go into the stock market,” he said.
This group is the largest income earning group in Australia’s history and the “largest acquirers of property”, Mr Lee said.
“Can you see where capital growth might stop?” he said.
Mr Lee predicted that traditional capital growth cycles, including the idea that property doubles in value every seven to 10 years, were no longer applicable.
“I don't have a crystal ball to tell me what it looks like but I suggest capital growth is not something that we should take as a given,” he said.
He also suggested taxes would rise while the pension and superannuation systems may suffer.
Mr Lee urged investors to plan their investments around cash flow rather than capital growth.
“If you can buy a property for $250,000 or $300,000 the tenant is going to pay off for you over 20 years - that's a pretty good return on your investment if you're only putting in a 10 or 20 per cent deposit,” he said.
“I teach my clients if I'm wrong and there is capital growth, then that's a bonus.”