Source: Wealth Creator Magazine January/February 2006

The market is perfect for purchasing, but to buy a top performing investment property you must do your research thoroughly.

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Fear & Greed Still Drive Our Markets

Source: Wealth Creator Magazine January/February 2006

Property fear, fear & greed still drive our markets

It is no secret that property markets are driven by fear and greed.

During property booms investors fear they are going to miss out and sometimes offer too much money for properties which drive the property markets higher.

Sellers on the other hand are driven by greed during booms knowing that buyers are keen to pay almost anything for a property and their greed pushes the price of property up. This creates a vicious cycle inflating property prices as purchasers are forced to pay more than they would like, just to get into the property game.

Today the opposite is occurring. We are in a slower market but it is still driven by fear and greed, only this time it is the other way around. The buyers have become greedy, while some sellers fear that the market is falling and there won’t be a buyer for their property.

During the ‘slump’ stage of the property cycle which is currently being experienced in many parts of Australia, buyers are not fearful that they are going to miss out on bargains, knowing that there will always be another property around the corner that will be reasonably priced by a motivated vendor. In fact many are concerned that the market may fall further.

Driven by the poor press property is currently receiving, some investors have become concerned and are selling their properties at low prices just to get out of the market. Others are trying to sell, but are holding on for an unreasonable period of time waiting for a ‘sucker’ to come around to offer an above market price. This doesn’t usually happen and their property sits on the market for too long until the vendor becomes desperate and tells the agent to sell, sell, sell.

Buyer’s market

In most parts of Australia we are now in a buyer’s market. The market is perfect for purchasing, but to buy a top performing investment property you must do your research thoroughly and buy below market price. And this is easy to do. In this slower market take your time, do your homework, look for properties to which you can add value, make lots of cheeky offers and when one is accepted – take action. Over the past 45 years the value of well positioned properties in Melbourne, Sydney and Brisbane has doubled every seven years. This growth is in the order of 10% per annum. However in the short term the picture is much more uncertain and confused and at times capital growth stops and even reverses for a time as we saw in the early ’90s and as we are seeing at present.

Below market value

This is the reason you must buy your properties below market value. This strategy means that you start off ahead of the game and any short term dips in the market should worry you less if at all. Even in slow markets there will be suburbs that outperform the general market and houses that outperform the general suburb. There will always be areas where demand exceeds supply and prices go against the trend.

Investors should be focused on doing their market research carefully and finding areas with a long standing history of capital growth.

It will be easier to buy good properties at below market prices today, something that can’t easily happen in boom periods. Although capital gains are rising at a slower pace, the right property choice should stand you well in the long term.

It’s always a good time to buy if your find the right property. If you believe in the counter-cyclical concept of investment then now may be the right time. Just ensure you have done your homework.

I am not waiting for the next boom to invest. I am buying properties now, because the next boom is when everyone else will hop in and push the value of property over the next few years to unthought-of levels.

Written by:

Michael Yardney is a successful Melbourne based property developer and property investor. As director of Metropole Properties, his opinions as a property analyst are highly sought after and frequently quoted in the press. myardney@metropole.com.au