Do you know one of the biggest differences between successful and unsuccessful property investment?
Yep, buying with your heart instead of your head often results in paying through the nose for a property because you have fallen in love with a piece of real estate. Savvy property buyers will always assess what is the most likely market price of a property and will stubbornly stick to the numbers that they have wisely calculated. Less experienced property buyers, on the other hand, may start out having an “idea” of what price they are prepared to pay, but then wind up forking out tens, or even hundreds, of thousands of dollars more for it.
Fear of missing out is a strong emotional lever that can turn even the most sensible person into a bit of a raving lunatic after all.
Here’s a case in point…
We recently put in an offer for a property in Adelaide for one of our clients. There is no question that the South Australian capital is showing solid property price growth potential, which is why there is such strong demand for real estate there. However, what happened next was a little bit crazy if you ask me. Our offer ended up being one of about 20 hats in the ring, with the majority coming from owner occupiers who had let their good judgment be replaced by some sort of property-induced hysteria.
Working for an investor client meant that there was no way we were going to try to beat a frenzied owner occupier to become the victor. You see, the reduction in supply in many locations means that the crazy market conditions are just getting more ridiculous. Of course, we are all human, which is why it can be so easy to get caught up in the mania and end up paying far too much for a property – especially when capital growth is happening so fast.
As well as access to cheap credit, there is some solid research to back up what is happening on the ground as well.
According to CoreLogic, the current market mayhem has resulted in the “sales to new listings ratio” hitting 1.4 over the three months to July. This ratio essentially means that for each new listing added to the market, there was more than 1.4 transactions that took place. The ratio over the past decade was 0.9, which suggests a market with slightly more supply than demand, however, the current measure indicates strong selling conditions with far more demand than supply According to the CoreLogic research, each of the capital city markets currently have a sales to new listings ratio of greater than one, ranging from 2.0 in Adelaide (which explains my comments above) to 1.1 across Darwin. This demand to supply imbalance has become even more pronounced in locations experiencing lockdowns, given the increase in the number or vendors postponing the sale of their properties.
So, what is one to do when there are people prepared to pay quite silly prices to secure a property at present?
The best piece of advice I can give is to step back and take a breath. Strategic property buyers always need to understand who their main competition is, and if it’s owner occupiers, the chances are unlikely that they will be the winning offer – and they don’t want to be either…
The adage that you make money when you buy property has always been true but is even more so in the slightly deranged market conditions that are occurring in many places around the nation at present. It can be difficult to assess market value in rising conditions, but it’s not impossible if you have the right team on your side. Plus, I know I’d rather feel the sting of missing out a few times, rather than the potential long-term pain of paying far too much for a property because your emotions got the better of your common sense.