Property investors must ignore nonsense research data: Terry Ryder

Property investors across Australia must be cursing themselves because they didn’t find out about the great Clayton Bay property boom of 2015 before it was too late. 

They could’ve had 50% capital gains in a single year if they’d been more on the ball. 

Others will be giving themselves an upper cut because they overlooked the hotspot potential of Canyonleigh and missed out on $300,000 in overnight equity.

Still others will be demanding answers from their advisers who failed to alert them to the 34% rental yields on offer in Mission Beach. How could they have missed that?

50% price rises in 12 months? Rental yields above 30%? Are such things possible?

In reality, no. They’re the product of computer glitches, careless research companies and media that doesn’t give a damn.

Much of this startling misinformation about booms that never were comes to the Australian public via a relatively new part of the property reporting landscape – the online “magazines” with daily bulletins.

Most of these products, which purport to be information services, are anything but that. The content is created by recycling press releases and contributed blogs. Most of it is propaganda from organisations with a vested interest in their message or the outpourings of publicity-addicted research companies that believe media will publish anything labeled “research”, particularly if it contains a list of the top five/ten of almost anything.

They regularly publish lists from researchers who seek publicity without caring too much about the data quality. 

Examples are “Top 20 locations with the highest yields” and “Locations where values have risen 40% in 12 months”.

These lists are the worst kind of nonsense, because most of the entries are computer-generated statistical aberrations – often because a small sales sample means the median price is meaningless.

Media reports a 40% rise in the median price as a 40% rise in values and it’s nothing of the sort. Usually it’s a mathematical glitch and the researchers don’t care enough to clean up their data. 

A recent example declared that the capital growth king of the nation, with a 49% rise in prices over 12 months, was Clayton Bay.

Where? I hear you ask. Clayton Bay is a town of just 200 residents near Hindmarsh Island south of Adelaide. Its property values have not increased 49% - a statistical glitch created by a very small sales sample (one sale per month, on average) has produced a 49% rise in the median house price.

Close behind of this fool’s gold list was Canyonleigh in the NSW southern highlands which, according to one breathless media report, “achieved 49.13% growth on a median house price of $857,500”. 

Canyonleigh, like Clayton Bay, is so small it doesn’t have a property market worthy of the name. It has insufficient sales to produce price data that makes any sense. 

Every other entry on this list was similar. The information was worse than worthless.

But it gets worse.

Did you know you could get 37% rental returns on residential properties in Mission Beach, Queensland? According to media (quoting figures from the same research firm), you can.

So why aren’t investors stampeding to Mission Beach to snap up every home in sight? Because it’s nonsense – yet another computer-generated statistical anomaly.

This blunder is created by recording the peak season rents achieved by holiday lettings and not telling the computer that properties are vacant for most of the year. If those peak holiday season rates were achieved 52 weeks of the year, the rental return might indeed be 30%-plus. But they’re not.

What’s the true median rental yield for Mission Beach? According to more reliable research sources, it’s 4.9%.

And would you want to buy there? Prices have been falling (a lot) for the past three years and it takes six months to sell the average property.

Lovely place to visit but you wouldn’t want to invest there.

Every location on the national list of best places to buy for the best rental yields was, yet again, a furphy. It makes for entertaining reading – as long as you understand it’s rubbish. 

But, week after week, the online “news services” pump out this nonsense as credible information. So I have to wonder how many people read it, believe it – and act on it.

Terry Ryder is the founder of hotspotting.com.au. You can email him or follow him on Twitter.