Do you find yourself feeling a little ‘rattled’ every time media headlines claim the property market is about to crash?
If that’s the case, you will unfortunately need to prepare yourself to see plenty of property doomsday headlines over the months ahead.
A familiar range of property commentators who have a long history of using fear to gain attention are once again back on the scene, making doomsday forecasts that are dangerously, but predictably, being featured in the media headlines. These analysts have been spruiking an imminent collapse to the Australian property market for as long as I can remember, only to be proved wrong every time.
We are also seeing extreme, conflicting opinions that have property investors puzzled, to say the least. On the same day, we are exposed to a negative headline, we can also read a range of positive forecasts describing bullish confidence in the strength of our national property market, with many creditable analysts sharing their expectations of a speedy recovery or even a strong rebound after COVID-19.
It is little wonder investors are feeling confused.
Regardless of these vastly differing opinions, it’s obvious that the resilience of the Australian property market will certainly be tested over the coming months as we navigate through this crisis period.
Beware of misinformation
Over the years, I’ve often been asked if Australian homes are too expensive and if there is a growing risk of a massive price correction. This question is always very hard to answer without an extensive explanation. But one thing is for sure; the headlines rarely tell the real story.
Informed property investors understand that there are hundreds of property markets within Australia. Each market has different strengths and weaknesses, creating risks and opportunities for investors.
Unfortunately, most headlines feature extreme situations, often drawing on the most extreme negative or positive example at that time. The headlines then often mislead the public by depicting that example as being representative of what the whole national property market is experiencing.
Even within most capital city property markets you will find a range of very different property markets. One suburb can be displaying a rising volume of vacant properties, sending alarm bells that properties are oversupplied and landlords can’t secure tenants, while just down the road in another suburb the same property type can remain totally undersupplied.
Property prices crash 25%
To make the situation even worse, these oversupplied suburbs are usually full of novice investors who have jumped into the market without really knowing what they are doing. Many could have purchased off the plan, paying a 10% deposit on an apartment that they later learn is dramatically overpriced.
When it’s time to settle, a valuation exposes the fact that they are contracted to buy a $750,000 property that the bank feels is only worth $675,000. If they were planning on the bank providing a loan for $600,000, they may now only have access to $540,000, forcing the investor to stretch their resources to breaking point, or risk losing their deposit.
If the property was to sit vacant for any period of time, the subsequent loss of cash flow can often deliver a knockout punch to investors. A situation like this is, unfortunately, a common one, and almost always ends in tears.
A desperate sale during a crisis period can see this property listed amongst many other very similar properties in the same building. If this results in a sale price of $550,000, it exposes a loss of $200,000 from the contract price.
A sale like this will provide the only evidence needed for the headlines to read: ‘Property prices crash 25%.’
Don’t let misinformation steal your dreams
The simple truth is that the hundreds of Australian property markets are not going to react to any crisis the same way. Each market will be affected differently and each property type will also have a different risk profile.
In every month, of every year, there are always ideal investment opportunities in dozens of national postcodes. A well-planned strategy will help you systematically identify these properties, whilst avoiding the common risks.
To help busy investors uncover the real stories ‘behind the headlines’ we are proud to offer fellow investors access to our Free Investor Toolbox. This ‘one-stop’ online resource is one of the first Investor tools you can access HERE. Over the next few weeks, I will be sharing more information about this exciting new free property investor service. Please click below to access this fantastic online property investor resource.