Read between the lines to get the most out of property investment advice
Was it the Greek tragedian Sophocles who said “no enemy is worse than bad advice”? If he’d lived in the 21st century, he’d no doubt be aiming his words at media reports from the property or finance industries. He may have followed his words with “no bad advice is worse than ‘expensive’ bad advice”. Because in both these industries, the consequence of bad advice costs exactly that – a good deal of expense.
It has the power to make or break an individual - the latter it will do quickly, the former it will do slowly – but undoubtedly, a bad mistake made on bad financial or property advice alone is not easily, or painlessly, undone.
Both industries are hard to control and even if the current level of regulation increased, it would be difficult to restrict what can and can’t be published in the media altogether. The best option seems to be by way of education – teaching readers to “read between the lines”.
It starts with a broader understanding of the base motivation lying behind the authorship – although in the age of digital media, ideally it should start in school. This aside – the reader should question everything, because currently the landscape of hype is littered with misinformation.
Like other professionals in the industry, I’m contacted weekly regarding submissions to various property magazines and websites. Sometimes I’m given the freedom to write on a subject of choice, other times I’m asked to comment on current newsworthy items. However, I made a personal commitment some time ago to remove the “party line” from my articles and write from an independent viewpoint – a viewpoint not always shared, or welcomed, by those I work with.
This past week, a request came from what many would assume to be a respected property investment magazine wanting to beef up the content on its website. As with many property outlets, the publication sent out a mass e-mail requesting material from “area specialists” in return for some free promotion. Obviously the idea is not just to attract readers but more importantly advertisers – the more content, the greater the number of hits.
In this instance, the publication wanted information on “hotspots” – where the market’s heading, which areas would outperform, and so forth. Obviously if you ask selling agents to identify a hotspot for the sake of free promotion, they’re going to spruik the suburb they specialise in. The advice is not independent or unbiased, and the word “expert” should come with a large disclaimer attached. If they sell in Doreen, Victoria for example, they’re hardly going to advise a purchase in East St Kilda! However, it’s fair to suggest a broad spectrum of readers will be influenced by the data.
The information carried in local and national newspapers holds the potential to portray a more balanced viewpoint. However, unless the reader has foundation of understanding about the subject, misconceptions can easily occur.
This leads me to a brief mention of a report a few days ago in the Herald Sun claiming “house prices” had risen some 125% in Melbourne over the past 10 years. Before vendors dance around in glee, it’s important to draw a distinction between the terms “house prices” and “median values”.
The term “house prices” suggests every property and every vendor has experienced the windfall, however we know this isn’t the case. Common sense alone dictates that areas close to city centres and major transport hubs, where the available residential land has been used and the population continues to increase, has inevitably underpinned established property prices over the last decade. Therefore, the vendors who purchased carefully a decade ago would no doubt have attracted healthy growth – growth that could be in excess of 125% in some cases.
However, there are plenty of vendors who wouldn’t have benefitted from a 125% windfall. They may have purchased the first roll out of apartments in Melbourne’s Docklands for example, or in outer suburbs. They may not have taken due care with the type of property, price paid, or buyer demographic in the near vicinity when choosing.
Property prices rise and fall, as they do with any other asset.
Another report, “Property experts blame the GFC for dud forecasts”, demonstrates the foolhardy nature of trusting respected analysts without a good deal of due diligence or risk management. In this instance, the article points out how previous rather bullish forecasts regarding the outlook for Perth’s growing prospects pre GFC were a little more than off the mark.
It’s true, few could have predicted the “X factor” event – but it also highlights how a complex the arena has become and importantly, how wary any investor should be prior to accepting predictive report (especially considering eruptions from the international landscape play an increasing role in consumer sentiment).
However, it’s not just pre-GFC reports that get it wrong – a post-GFC “off the mark” example can be viewed here – BIS Shrapnel predicted in a report in 2009 that house prices in Melbourne, Sydney and Adelaide would increase up to 22% over the following three years. Or read here – data providers in 2009 predicting 7.6% growth per annum in Sydney over the next decade.
Granted, we still have a while to go before we can calculate the accuracy contained in some of the above information, however all are based on median house prices, which as previously mentioned have little relevance for individual property prices.
With overall sales turnover still lagging behind that of previous years, any rise in median value is only representative of the particular composition of “good” properties selling. Buy well and you may sell well and get an average 7.5% per growth per annum. One the other hand, purchase into one of the high-rise blocks currently under construction and based on the level of supply alone, you’ll probably get the opposite.
This aside, reading reports on future hotspots is all well and good. However, they tend to feed the concept that money can be made from property short term. It’s important to balance the message with an understanding of the motivation – good or bad – lurking behind the words. This aside – boom markets (hotspots) have a habit of “correcting” rather sharply. The risks are always greater if due diligence isn’t taken initially. Be warned!
I don’t expect anyone to think politicians can be trusted on the face of the information they provide. Even the most innocent of minds will be educated in this regard.
The market in Geelong, Victoria, was expected to remain flat with minimal growth over the past 12 months. But it turns out, when it comes to council rates, property prices are soaring!
According to the latest rate assessments, values in Geelong have increased 10.2% over a two-year period.
The lessons gleaned from all of the above should ring clear – it’s only through careful researching and an element of self-education that you can really buffer against a risky environment. Don’t blindly accept the advice of a “property expert” or journalist, any more than you’d trust that of a politician without investigating the reliability of the data they provide or motivation behind the sales pitch.
Catherine Cashmore is a market analyst with extensive experience in all aspects relating to property acquisition.