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How a property valuer helps investors in ‘unforgiving markets’

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How a property valuer helps investors in ‘unforgiving markets’

by Bianca Dabu 24 January 2019 1 minute read

Often overlooked unless it’s time to buy or sell an asset, a property valuer could turn out to be an important part of an investment team, particularly during tough market cycles. Find out how valuers can support your wealth-creation journey:

Suburbs
January 24, 2019

According to property valuer, investment adviser, market commentator and author Anna Porter, valuers determine a property’s worth by studying the market at a particular time with a focus on evidence-based information on sales and transactions.

Essentially, valuers determine the value of a property at a given time.

“They're not there to dictate the market. They're there to interpret the market,” Ms Porter highlighted.

While she had stepped away from being a full-time property valuer to focus on giving investment advice, Ms Porter said that the skill set she has honed as a valuer continues to help her provide the best services to her clients.

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Market volatility

Instead of simply focusing on the numbers, Ms Porter now helps investors understand the fundamentals that make properties perform well in the market.

Is the property priced high because it checks all the boxes of property investment fundamentals? Or is it simply in a booming market?

“When the market's strong and everyone's buying up, properties with problems get forgiven, right? No natural light, flood zone—regardless, there's a lot of forgiveness in the marketplace and they still go up in value and people still pay high prices.”

To avoid the negative impact of market volatility on property portfolios, Ms Porter avoids taking boom markets into consideration when helping investors pick their next property. Instead, she focuses on the wealth-creation potential of the property itself.

“Soon as the market turns, those problem properties cannot be shifted. They cannot be rented, they cannot be sold for a reasonable price and the discounting settles in,” according to her.

‘Unforgiving markets’

Where she used to simply determine the value of a property at a given time, Ms Porter now helps investors determine the potential value of an asset in ‘unforgiving markets’.

Often, investors tend to get excited over markets on an upward trajectory, failing to keep in mind that without the right fundamentals any market could be volatile.

One of the good examples of volatile markets, according to Ms Porter, are Southeast Queensland and Tasmania—both of which have rapidly gained popularity as Sydney and Melbourne recede to a softening state after years of unprecedented property boom.

While it’s true that both areas currently offer affordable properties and high rental returns, they are also largely driven by investors—making them susceptible to sudden changes, the property expert said.

“On paper, it looks too good to be true, but being a valuer and having worked in big portfolios for huge investors and a lot of distressed assets, what I saw was, when a market is driven by investors, it's incredibly volatile. Gold Coast, in years gone by, had this boom-and-bust effect.”

“Right now, Tasmania's had a good year. Hobart's had about eight to nine per cent growth in the last year. Still, it's not being supported by job growth. For every five people that move to Tasmania in the next three years, there'll be one job created, and that's not enough.

“Tasmania’s growth is not underpinned by population growth, by employment drivers, by the locals paying higher prices because they're earning more money. The fundamentals are wrong,” according to Ms Porter.

Without the right fundamentals, investors may feel the negative impact on their portfolios soon enough.

“Investors push the prices up and the locals can't sustain them. Soon, a bit of vacancy will kick in because there's not a big enough population there. Rents get discounted, interest rates go up, the economy tightens and then you start getting distressed asset sales. Get a few of those and you start to see the whole market collapsing.”

At the end of the day, Ms Porter strongly encouraged investors to focus on property and economic fundamentals when making investment decisions to make the most out of their hard-earned money.

Where appropriate, seek the help of professionals to get a better understanding of the property markets and their movements.

“You have to pay attention to those fundamental issues, those volatilities. That's what we're really careful with our clients. That’s what we’re steering them away from,” she concluded.

 

Tune in to Anna Porter's episode on The Smart Property Investment Show to know more about the factors that can lead to a market collapse and how investors can avoid volatile markets.

How a property valuer helps investors in ‘unforgiving markets’
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Bianca Dabu

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