There is an important capital growth driver being overlooked by property investors which, when used correctly, could help them identify where and when to buy.
Wage growth is a “key element” to people getting into the market, purchasing property and building portfolios, Real Wealth Australia’s Helen Collier-Kogtevs said.
Ms Collier-Kogtevs said this trend is exacerbated by the lack of financial education in Australia, which ensures a direct correlation between people’s lifestyle spending and how much they earn.
“If someone earns [a multimillion-dollar salary], they buy the big house worth millions and they have the fancy cars and the lovely furniture – all of that correlates to their million-dollar salary,” she said.
“People will live to their income. So when there’s an income increase, people all of a sudden go, ‘oh, let’s upgrade, let’s do the renovation or let’s get the bigger house’. All of a sudden you see a bump in prices.”
Ms Collier-Kogtevs said when this phenomenon begins a fear of missing out can make property price growth a self-fulfilling prophecy, which ultimately turns the market into a “frenzy” – something she said is happening in Sydney at the moment.
She said Sydney price growth is particularly contingent on wage growth and cautioned that wages in the city may be about to peak.
Investors who understand how wage changes relate to property price fluctuations will have a better idea of where and when to buy and sell.
“I always look at how much people earn in a town or suburb [that I’m intending to buy in]. I always factor that in – because not only do I want to make sure that when it comes to selling it there will be someone to buy it, but I also want to make sure that the people renting it can afford the rent and the increase.
“You don’t want to just have them pay the rent and then leave the rent as is for the next 10 years. You want to be able to increase the rent and you want your tenants to be able to afford the rent. You don’t want to put them under financial strain because of your rental increases.
“So I always look at income.”