City-based investors making schoolboy errors in regional investments: Hotspotting's Terry Ryder
Expert Observer
City-based investors are making schoolboy errors amid the frenzy that pervades many property markets across Australia.
They’re selecting regional properties recklessly, they’re committing without proper due diligence and often they’re paying way too much.
“Buy in haste, repent at leisure” will become the catchcry for many investors in the future.
Much of what’s happening in this national property boom arises from the fundamental failing of most Australians who attempt property investment: they’re herd animals.
The relatively few who are switched on were buying six or nine months ago. What’s happening now in our property markets was foreseeable and it was predicted by Hotspotting and by others who truly understand real estate dynamics, like Simon Pressley of Propertyology.
Investors who make it their business to stay informed, who have built a team of trusted advisers and who are research-based in their decision-making were in the market well ahead of the rampaging pack.
But they’re the exceptions. Most simply follow the herd. They’re in the market now, or trying to be, because they heard there’s a boom on.
They haven’t done any work or thought too deeply about it, they’ve simply joined the stampede.
Right now, it feels like you could stick a map of Australian on the wall, throw a dart at it, buy wherever it lands - and make money in the next 6-12 months.
But what about the longer term? Does the location of choice have the credentials to provide sustainable long-term growth? Even in rapidly-rising markets, you need to make good choices about location.
Having picked a random location, many are buying sight-unseen and not applying the usual checks and balances. They’re viewing a property online, making a phone call and buying on the spot.
They say the camera doesn’t lie, but the person wielding the camera or the computer software often does. And what about building and pest inspections?
To complete the trifecta of colossal mistakes, buyers are often paying above market value. They think they’re getting a bargain because they’re a city resident buying in a regional area and the target properties appear cheap.
I had a recent conversation with a Sydney resident about the market in a Queensland regional centre where typical houses cost in the $300,000s. He went online while we were speaking and looked at properties for sale. His reaction: “Wow, that’s really cheap!” He was ready to buy on the spot.
But while the homes he viewed may have seemed cheap relative to Sydney, they may well have been over-priced in terms of local values. Many vendors are asking silly prices because they’ve heard that many buyers are doing silly things.
As a result of this kind of activity, median prices are rising rapidly – and local buyers are complaining because they’re being priced out of their own markets by buyers from the big cities.
Everyone involved in the process, except perhaps vendors, would prefer more normal markets. But what we have are abnormal conditions, created by a series of events and circumstances which have been building over the past 6-9 months.
It’s not about the low level of interest rates, it’s being generated by the economic and other circumstances which I discussed in this column four weeks ago – 16 dot points on my list of factors generating Australia’s first genuine nationwide property boom in 20 years.
But fast-rising prices may not cover the mistakes that many investors are currently making.
Terry Ryder is the founder of hotspotting.com.au
ryder@hotspotting.com.au
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