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Despite its importance, the effect of investors’ mental and emotional states on the real estate market is not often considered.
Blogger: Zaki Ameer, founder, Dream Design Property
Australian property values began their current growth phase in June 2012, and since that time values across the country’s combined capital cities have increased by a staggering 24.3 per cent, unnerving purchasers around the country.
Australia’s residential property market moves in distinctive cycles that average between 10 and 12 years in length. The market has a number of driving factors continuously at play, including housing supply, interest rates, population growth and the often-overlooked psychology of participating individuals. Tracking this last factor will help you make solid investments by measuring the peaks and troughs in the long-term performance of the property market.
Psychologist Dr Phil Harker says, “History has shown again and again that social change is not driven by majority opinion but rather by the bold actions of a few innovators. Sometimes the motives of the innovators are underpinned by selfishness and separate interests and hence lead to disaster. Sometimes the innovators are driven by a desire for shared interests – shared solutions – shared outcomes. This world is certainly in need of more of the latter. All trend setters are keen observers of the times they are living in and understand what drives humanity forward.”
Despite its importance, the effect that the mental and emotional state of participating individuals has on the property market is not often explored. Here, I’ve explained how the real estate market is psychologically driven:
The fear in all of us
Fundamentally, it is fear that drives people the most; whether it’s the anxiety of missing out on your dream property, or the panic of being left out of the market altogether. People’s confidence in the property market is fluctuating more than ever, and it is fear that coerces people into making rushed decisions, which unfortunately often end in regret.
When caught in an action-packed auction, with buyers outbidding each other and driving prices well above the average, people are often motivated by apprehension.
Rather than succumbing to the fears that stem from such competition, it’s wise to have a solid mindset well before you place an offer on a property. Prospective buyers need to clearly define their goals and have a strategic plan in place.
Our tendency to follow the crowd
As humans, we are prone to becoming accustomed to a herd mentality, as we are heavily influenced by the people around us. This psychological conditioning to follow others has an effect on the real estate market, as people regularly buy and sell based on hearsay and dismiss the basic rules of property investment.
With auction clearance rates, house prices, settlement volumes and the dollar value of settlements all recently showing signs of slowing down, people are looking for direction. Needless to say, this type of information has, and always will, feature heavily in media. However, this coverage heightens people’s fear, as we look to others for guidance on how to react and move forward.
Opinions of trend setters
It only takes a few out-of-the-box thinkers to start a trend. An upward shift in the property market is often driven by established and savvy investors who set the direction for what’s to come.
Many years ago, these investors were buying in Sydney’s western suburbs and other suburbs throughout the country that many were shying away from, but are now booming! These investors had the educated foresight to understand before anyone else that the areas were going to change and gentrify.
As in any other industry, this trend eventually reached the public eye, but by that time investors had already established themselves in the ‘new’ area, significantly driving up property prices.
Ultimately, I would recommend that people question every source of information at hand, whether it’s a personal or professional opinion, before they make a judgement call. People’s opinions are unavoidable and it is usually a handful of overarching voices that dictate market trends. Educating yourself and being aware of all the factors influencing the property market will ensure you make sound investments.