The Real Cost of Buying the Wrong Property

It’s at this time of rising confidence that investors need to be savvy, cautious and selective with their purchases. Not all properties grow at the same rate – and the cost of buying the wrong property could be higher than you think.

What’s the worst that could happen?

Property is a popular investment vehicle for many Australians because it appears safe and stable. It’s widely believed that all properties will grow in value, and that the “worst case scenario” is simply a lower rate of capital growth.

Sadly, this is not the case. Recently we have been contacted by owners of properties that have significantly dropped in value, severely undermining their owners’ investment goals. Other properties have stayed stagnant and are likely to continue in this vein for a number of years to come. Unfortunately none of these people used Momentum Wealth to find their property and they have suffered as a result.
Here’s some examples:

Townhouse, QLD: Purchased for $384,900 Re-valued at $238,000
Apartment, WA: Purchased for $349,000 Re-valued at $310,000
Apartment, WA: Purchased for $1.2 million Re-valued at $850,000
Townhouse, VIC: Purchased for $510,000 Re-valued at $380,000

Why did these investment properties fail?

Every property is different, and there’s no perfect matrix of investment factors that will always produce the same result. However, we noticed a few common factors between these examples that contributed to their poor performance:

Too much supply: Property, like the wider economy, is a game of supply and demand. Large quantities of new supply, such as new apartments and new house & land packages, hold back the capital growth of established properties in the area. While there is ample supply of brand new properties, there is no incentive for established property prices to rise. Not only this, but when developers are under pressure to sell more properties (as they have been in most cities in Australia over the last 3-5 years), they offer discounts and incentives on their brand new properties which effectively discounts your property as well!

New property supply is not evenly distributed across Australia’s capital cities; in every city, there are regions that have significant supply of new property (with more supply still to come), and suburbs which are tightly held. Investors who buy in these over-supplied locations can find themselves waiting for years for “the next boom” instead of enjoying the steady capital growth they expected.

Inflated purchase prices: Another reason that some properties have not increased in value is because of commissions loaded  fethiye property for sale into the price of some of the projects by developers. Our finance division has been flooded with requests for assistance where investors have realised they have lost significant value in their properties. The problem is, many of these properties were never worth the contract purchase price. Commissions in property marketers can be significant and can add up to 10% to the property sale price – putting the investor on the back foot before they’ve even begun.

Investor-targeted marketing: All the properties listed above were marketed by “Property Investment Companies” as great investment properties. The problem is, when a development project is marketed primarily at investors, it can hide the real state of the market.

 

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