Puzzle Finance Blog

Investors warned not to follow the herd

As the property market heats up and the Sydney auction clearance rate hit a spectacular near-record 84 per cent on the weekend, a leading property economist has warned mum and dad investors to do their research carefully before diving into the market.

Dr Andrew Wilson, the senior economist at Australian Property Monitors (a Fairfax Media company) says there's a burgeoning investor industry growing off the back of the current flight to bricks and mortar by investors, and buyers need to be wary of rushing into so-called "hotspots".

"Is there really such a thing as a hotspot?" he asks. "Or is the hotspot just a place where investors get their fingers burnt?"

While Wilson says Australia has a "resilient, robust housing market", he warns "that doesn't mean that it's a license to print money. Unfortunately there is a proponent of the quick, easy kill in the housing market once it starts to rise".

Wilson says mining towns, such as Gladstone in Queensland, are stark examples of how markets can become overheated and inflate when there is a rush of investor funds.

In assessing whether an area offers good investment prospects, purchasers should gain an understanding of the demographics of an area, research recent vacancy rates and price movements, learn about future developments planned for the location and, most importantly, know the local economy.

"If the local economy is underperforming or if it is exposed to say, just one element, like a mine or a large agricultural resource or a ... manufacturing entity that drives most of the economic output, then ... you can be exposed to a downturn quite quickly," Wilson says.

"That's why larger markets with a more diverse economic profile offer the best type of ... investment."

Wilson also warns that the housing market is not the place for short-term capital gains. "People have built themselves very solid portfolios, which do become secure nest eggs, by taking that medium to longer term view, by building that equity in solid stable markets, like in capital city markets."

One thing is for sure, a market that heats up must cool down at some stage. "My gut feel is that next year we're going to see a downturn in the economy and that will take a little bit of the heat out of the market," says Wilson.

Posted by Carolyn Boyd - Domain on 3rd September, 2013 | Comments | Trackbacks

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