Where not to buy property: Terry Ryder

A defining feature of 2016 was that knowing where NOT to buy became as important as where to buy.

Until recently, for investors it’s simply been a matter of buying in the places where prices were rising, mainly Sydney and Melbourne.  For most of the past 3-4 years, it’s felt as if owning real estate anywhere in the two biggest cities was a guarantee of capital growth.

As we contemplate 2017, buyers need to be lot more particular about their choice of location. Now, more than any time in the past four years, there’s a real prospect of losing money if you choose badly. Next year my No Go Zones report will be as important as the Best Buys report.

And the key factor in that equation is oversupply, specifically for apartments in specific locations. Both Sydney and Melbourne, as well as other parts of Australia, have locations I classify as “danger markets”.

And it’s clear that people are already choosing badly.

CoreLogic has published a report which was designed as the most popular places to buy but which, inadvertently, served as a de facto No Go Zones report. It highlighted most of the worst places to buy in the nation.

The fact that these were the most popular places for buyers, based on the number of sales in the past 12 months, just shows how bad real estate consumers are when it comes to choosing location - and how little research some people do before committing big money.

According to CoreLogic, the most popular market in Australia is the Surfers Paradise apartment market (1,616 sales in the past 12 months), followed by the Melbourne CBD apartment market (1,296). 

I’m trying to think of a worse place to buy real estate in the major population centres of Australia, but there are few I can think of. The only real contenders would be the inner-city apartment markets in Perth and Brisbane.

The Brisbane CBD also makes the Top 10 list of most popular places to buy apartments in Australia, alongside the CBD, Southbank and South Yarra in Melbourne, four highrise locations on the Gold Coast, the Adelaide CBD and Dee Why in Sydney.

Not all of those locations are absolute duds but most of them are.

You have to wonder about the thought processes behind buying an apartment in Surfers Paradise. Of the major markets around Australia, there are few with a worse track record on capital growth. The median price today is lower than it was 10 years ago. Very few locations have a record so bad.

Of course, a poor past record doesn’t disqualify a location from the prospect of future growth – but there needs to be evidence that something has changed, or will change to turn the situation around.

But the situation with the high-rise suburbs of the Gold Coast is not changing. It’s situation normal – developers going overboard and building too many apartments. The Gold Coast economy is currently strong and there is growth to be found in the city’s real estate market – but not in the high-rise suburbs, where developers are determined to repeat history through overbuilding, in the belief they can make sales by marketing to poorly-researched investors interstate and overseas.

In the Melbourne CBD, the median apartment price is lower than it was a year ago and three years ago, and about the same as it was five years ago. Is anything set to change? Yes, but not for the better. Massive oversupply will cause vacancies to rise, with rents and property values falling.

Ditto near-city locations like Southbank.

So, as a guide for consumers on where to buy, this list is worse than useless – it’s dangerous.

There’s a different look about the list of Top 10 most popular places for house sales, but as a guide for buyers it also has little value. It consists of new suburbs on the periphery of Melbourne where lots of new homes are being built and three NSW regional cities which are treated as a single suburb, rather than being diverted into individual suburbs like most cities.

So, again, meaningless information of no value to serious investors.

Sadly, many investors employ the “me too” research method. If everyone’s doing it, it must be right. Right?

Those who apply that method after reading these lists, especially the Top 10 list for apartments, run the risk of losing serious money.

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