In a recent article published in the Sunday Telegraph, property analyst company Residex revealed that 24% of Sydney vendors who had purchased and then sold their properties within the past 5 years lost money.
The news gets worse as Residex statistics suggest that up to one third of all homeowners in Australia who bought their properties in the last five years would be out of pocket if they put their home on the market today.
Of course these words of warning from Residex CEO Mr john Edwards are even more significant for those looking to profit from the housing market through investment.
Residex data suggests that the average shortfall between what Sydney homeowners originally paid and the price achieved when they chose to sell was over $54,000, with the most substantial losses in the upper echelon Neutral Bay/Spit area averaging a staggering $275,000.
Mr Edwards says that in addition to the market slowdown experienced across Sydney, part of the problem largely lies with valuations being conducted that are far from accurate, with 15% of buyers over paying for property.
He said, “Valuing property is still more of an art than a science. Valuers do not have to provide enough statistical evidence for their valuations and, frankly, they are not paid enough to spend sufficient time on each property.”
Of course one of the biggest problems isn’t necessarily the result of inaccurate valuations or even poor market conditions. In fact the main issue we see here at Metropole stems from the way many buyers make their purchasing decisions.
Whether it’s a would be homeowner becoming swayed by their emotions and overpaying at auction or simply a lack of knowledge when it comes to the local property market and values, many buyers fail to take an unbiased and strategic approach to their housing purchase.
This is not surprising, because buying a home is often an emotional process. Let’s face it, generally you are spending more in this one transaction than you will spend on anything else in your lifetime and you are searching for that perfect place to shelter your family and socialise with friends.
According to Mr Edwards though, this approach to home buying could see more people losing out in the future. Rather than being caught up in the moment, now more than ever purchasers must exercise caution.
“Historically, you have been able to get away with this type of behaviour” Mr Edwards said. “But with lower growth predicted for property markets around the country, buyers are going to have to be much more careful.”
At Metropole we have noticed how many home buyers and investors are being swept up in a frenzy of fear and greed as our property markets hot up. I see many of these buyers setting themselves up for problems in the future.
You see… traditionally when we come out of the slowdown phase of the property cycle and enter a more buoyant market, buyers who were hesitant to make a move start to emerge and in turn, activity increases.
However, we are now seeing many investors, who feel they missed out over the last year as they watched others make good money in property, snapping up properties the day they come on the market, sometimes at thousands above the asking price.
Many of these “green” investors are making poor judgement calls, buying properties without doing their due diligence and paying the same high price for their mistakes as others have before them.
The take home message is that now, more than ever, you need to avoid getting swept up in the housing market hype and keep a level head when it comes to purchasing property, whether you’re a homeowner or investor.
With the market being selective as to which properties are increasing in value, it is critical that you do your homework and remember that you can’t just buy any property and become a successful property investor. You need to look for the type of property that will out perform the averages in the long term, regardless of cyclical highs and lows.
For the latest information on what our capital city housing markets are doing and how you can profit from your own residential investment portfolio regardless of what the overall market is doing at any given time, please join us at one of our free property briefings in Sydney, Melbourne, Brisbane or Perth.
We can give you unbiased advice on the best buys going, whether you’re looking to buy your own home or make a financially rewarding investment. Please click here now for more information or to reserve your place at one of these informative briefings.
George Raptis is a director of Metropole Property Investment Strategists in Sydney. He shares his 22 years of experience in the property industry as a licensed estate agent and active property investor. Go to www.metropole.com.au
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