The big problem with blanket price predictions for investment property
November 25, 2016 / Written by Rich Harvey
The thing with big statistics is, they're easy to keep at the forefront of your mind. Take this one from CoreLogic RP Data - in the last eight years, Sydney's house prices have increased by 87.9 per cent. Or the fabled "million dollar mark" that pops up in every second headline about the Australian property market.
They're big numbers, and easy ones to cling to - I know I've been guilty of this myself. But what you always have to remember when you're dealing with property statistics is that these blanket statements don't actually mean a lot when you're buying your next home. Here's why.
It's not specific enough for your needs
CoreLogic RP Data's monthly indices can tell you that the median value of all dwellings in Sydney went up by 10.59 per cent in the year to October 31st. But you're not necessarily going to by a median dwelling at a median value. You're buying a two-bedroom apartment in Bondi, or you're buying a four-bedroom house in the Inner West. Something specific, that needs specific figures to give you the full picture.
It's a true analysis of what you are buying, rather than looking at sweeping value figures and deciding that's enough information.
Sydney-wide value gains and rental yields don't tell you the positive cashflow that you will get on a specific piece of real estate that is on your radar, it just gives a more general view. That's why in-depth research is so valuable - it gives you insider market knowledge on specific suburbs, streets and properties. It's a true analysis of what you are buying, rather than looking at sweeping value figures and deciding that's enough information. It's the sort of service that you can only get with a buyers' agent.
It masks the negative pockets in a property market
The overall outlook for Sydney has been overwhelmingly good in terms of value growth, but the big picture numbers mask some issues that house hunters will face. Take, for example, high-rise buildings. The Housing Industry Association has regularly expressed concern about the glut of units and apartments going in across Sydney and Melbourne, fearing it creates a pocket of oversupply.
Where this does occur, it can have some negative impacts on growth. Other suburbs will also now be reaching the apex of their value cycle, and begin to plateau. Meanwhile, others are just getting started. Some parts of Sydney, like the North Shore and the Eastern Suburbs, seem to always grow in value no matter what the wider conditions are - that's the value of prestige property.
If you're looking at buying property in Sydney based on larger-scale figures or some surface level evaluations, you absolutely have to dig a little deeper. Otherwise, you could find yourself buying in an area that's going against the trend.
Use the big picture - but then narrow it down
Big picture, city-wide data has its place. For example, the 2017 John McGrath Report on Switzer predicts excellent growth for Sydney next year compared to other capital cities, suggesting it's well worth looking into for owner-occupiers and investors alike.
Price predictions for Sydney's 2017 market are already rolling in – but are they any good? https://t.co/WZpS29JO7Y
— Rich Harvey (@richharvey) November 14, 2016
However, you then have to zoom in and find the specific areas that are going to stand out. McGrath has picked places like Strathfield, Parramatta and Ryde as hot spots for the coming year, which is a good starting point for property researchers - but you have to go even further.
What are apartment returns in Parramatta like compared to houses? While $500,000 might get you an apartment in Parramatta, could it get you a much larger house in a central Brisbane suburb? To make the most of the market, you have to get specific. It's a lot easier with the help of a buyers' agent.