The Perth property market will rise again: Terry Ryder

The herd mentality and the FOMO syndrome drive far too many investment decisions in Australian real estate.

It helps to explain why most Australians who attempt property investment have a bad experience. 

When people are driven by an impulse to do what others are doing (the herd mentality) or to get in because they don’t want to miss all that lovely capital growth they keep hearing about (the FOMO – Fear Of Missing Out – syndrome), they’re buying well after the boom started.

Many investors buy real estate at the peak of the cycle. Worse, some buy after the peak.

People are still out there bidding up prices at Sydney auctions, driven by the FOMO syndrome, unaware that the peak has passed and Sydney’s boom is fading.

It means that fundamentally they are paying too much and destroying their chances of maximizing capital growth.

No one ever got rich following the herd. Some have succeeded by leading the herd but the truly successful people are those who run in the opposite direction to the herd.

People love the comfort of the pack. They would rather be part of a herd stampeding towards a cliff, than detach and run in the opposite direction, towards safety and potential prosperity.

Because of the power of the herd mentality and the FOMO syndrome, most people buy when prices are high.

When the market is down, they stay out of the market. They’ll get back in when they read that the herd is running again.

Crazy stuff. 

Right now, the Perth market is down. I’ve been suggesting to people it’s a great time to consider buying there. The Perth market, which was strong in 2011 and 2012, peaked early in 2013.

The heat has long since evaporated from that market, there’s no competition from other buyers, prices have eased off and the buying is good.

You just have to believe that the Western Australian economy has a future and that the Perth property market will rise again.

Taking a long-term view, Perth is a strong market with a great track record. Its 10-year capital growth record is the strongest among the state and territory capital cities, much better than Sydney’s or Melbourne’s.

It has a history of strong population growth and a buoyant economy boosted by its links to the resources sector. It’s currently struggling but that won’t last. 

Perth has also shown itself to be resilient during periods of downturn. I don’t expect any major price decline in the current phase, with the exception of oversupplied inner-city apartment markets which should be avoided.

While awaiting recovery in the Perth market, the best strategy to maximise capital growth prospects is to follow the infrastructure trail. Find a location primed to benefit from spending on new infrastructure, especially transport infrastructure, and well-linked to major jobs nodes.

Locations with those qualities include the precincts around Rockingham, Fremantle, Midland and Forrestfield.

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