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‘Don’t buy the headline’: Investors need to prioritise local knowledge
While it is easy to get caught up in the general sentiment around the property market, smarter investors should look beyond the headlines and hone their local knowledge to achieve strong results.
Results Mentoring founding members Simon Buckingham and Brendan Kelly said that investors needed to avoid being swept up in the mania around the property market and instead focus on localised data to understand current conditions.
Kelly said that while much of the focus was often on trends emerging on a broader scale, it was important to understand how the market was acting locally.
“There is no one market. No two suburbs behave the same way at the same time,” Kelly said.
“You’ve got some twenty-odd thousand individual markets playing out through the country at any one moment.”
He said that the housing market and unit market within the same suburb could be moving in wildly different directions.
Similarly, Buckingham said it was important for investors to look deeper and be able to separate the relevant information from the rest.
“When the headlines are screaming out about the market, the smarter investor needs to ask ‘well, which market are we talking about?’”
“Don’t buy the headline, understand how to read the market down to the suburb level.”
Not a crash, a correction
Buckingham said that while the market had softened, claims that Sydney and Melbourne were going to experience a “severe collapse” were blown out of proportion.
“Not to dismiss the weakness in the market, as it has clearly shifted over the past few months. But we do need to try and separate those alarmist, perhaps clickbaity headlines from useful signals that we can actually apply for decision-making as investors,” Buckingham said.
When investors spend too much time focused on the headlines, Buckingham said they often become fearful.
“That’s the worst thing you can do in the property market: just sit there doing nothing because you don’t know what to do. The smarter approach is to try and understand what’s really going on beneath the surface.”
With the volume of listings rising and sales falling on a national scale, Kelly said it had painted a picture of a slower market.
“We’re not seeing the hunger and desperation that existed years ago. It is a change in the market, but none of that speaks to the idea of a crash or a collapse,” he said.
“Where we are right now is a cooling; there is a sensitivity that we’re seeing and experiencing from buyers and also from sellers.”
Tax incentives are a benefit, not a major driver
Buckingham said that while many investors had been hesitant to act after the changes to property taxation, they may be hurting their long-term results.
He said investors should make their decisions while equally considering all of the factors impacting the performance of their asset.
“If you’re chasing the tax saving without considering the vulnerabilities, the likelihood of profit, the balance of supply and demand, then you could be setting yourself up for a higher risk investment.”
“You might save some tax, but you might not make any money.”
Kelly said that for the majority of investors, the tax incentives that accompanied a property purchase were significantly less valuable than the capital growth.
He said they needed to understand why they had purchased the property and what goal they were hoping to achieve.
“The tax incentives are a benefit if you can get them. The rental income is a benefit to help with the ability to own the house, but the primary objective is the capital growth.”
“The only way it makes a contribution to your ability to live a better life at the back end of your 40-year journey as an employee is if you get the capital growth.”
Listen to the whole episode here
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