Investors misled by skewed median prices

By Stefanie Garber 26 August 2014 | 1 minute read

In areas with a high number of new dwellings, investors should be wary of using the median price as an indicator of value, according to a national buyer’s agent.

When buying an older property near a new development, investors may believe they have snagged a bargain because the property comes in well below the suburb median, Right Property Group director Victor Kumar said.

However, this median may have been distorted by the high proportion of brand new, premium houses on the market.

“The median price is skewed because there are a lot of new property sales in the area,” Mr Kumar said.

“If people are buying older homes, if they are buying $400,000 and the newer homes are selling for $550,000, they think they have got a bargain. But in reality, it might not be a bargain.”

Nonetheless, he believes new properties can also drag up the value of older properties in the area.

“You have already set the precedent and set a higher ceiling, so that's what the market is now accustomed to,” he said.

As an example, he explains older properties in the suburb of Minto have become more valuable as a result of a new housing estate.

“Because the new properties are selling for $550,000, that ultimately pulls up the prices of the older properties, because they have bigger land content,” he said.

RELATED TERMS

Median price

Median price refers to the middle point for real estate prices that exactly determines half of the houses priced for less or more.



Investors misled by skewed median prices
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