The residential property myths you should ignore


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Many of us are addicted to real estate - we even have a dedicated TV station to feed our habit - and this can blind us to the reality that choosing a good investment property is just as hard as picking a stock that will perform well.

A number of myths have developed around residential property, most of which should be ignored. At the top of the list is the notion that property prices only rise and can never fall. Not so.

Just ask those who bought Gold Coast investment property around 2007 before the market crashed spectacularly in around 2009. One of the penthouses in the Circle on Cavill twin-tower development gives an insight into the boom-bust nature of this market.

residential property myths

It originally sold off the plan for more than $5.5 million in 2007 and re-sold for $2.5 million in 2011.

Another myth is that successful real estate investing is much more about location than timing.

Market commentator Louis Christopher, managing director of SQM Research, labelled the Gold Coast a basket case in 2010. But even the worst markets can change. The 2011 buyer of the Circle on Cavill penthouse sold it for $3.6 million in 2012, pocketing a cool $2400 profit for every day he owned it.

And now the Gold Coast is touted as one of the stronger growth markets for 2016, while Sydney, regarded as Australia's best-located market, is facing price stagnation at best.

Christopher predicts Gold Coast prices will grow 7% to 11% in 2016, and says at the end of 2015 asking prices for houses are up $100,000 from the lows of 2013 and units are up about $30,000.

Increased tourism, helped by a lower Australian dollar, under-building of new stock from 2011 onwards and new infrastructure demands for the 2018 Commonwealth Games are driving the market.

But some commentators, such as Terry Ryder, author of our Top 50 property hotspots, warn investors to steer clear of Gold Coast apartments, which Ryder labels the worst capital gain performers in Australia, and instead concentrate on houses.

Steering clear of markets other than the major mainland capitals is another myth that can cause investors to ignore good opportunities. For example, Hobart must be close to the most undervalued city in Australia, says Christopher.

"Just like the Gold Coast, Hobart vacancies have fallen to almost nothing at under 1%, and that's pushing rents up in a big way," he says.

Investors can now secure a Hobart unit at a 6% yield and a house at 5%. Given today's historically low mortgage rates, the city provides investors with many opportunities to buy positively geared property.

Hobart is also relatively affordable, with the average house price only 4.2 times the average income, according to Matusik Property Insights. In Sydney that ratio is more than double at 8.8.

Another common myth is that there's no need for investors to do their own research because there's so much information available.

The current notion that the Melbourne market is experiencing a significant downturn is an example of why this can be dangerous. "I'm not sure where it's coming from but the data is completely contrary to this," Christopher says.

Clearances are higher than in Sydney and only slightly lower than at the same time last year, listings are lower and asking prices are higher and accelerating, he says.

Things are looking promising for landlords with the overall vacancy rate at 2.4% and rentals up over the past 12 months - 4.4% for houses and 3.6% for units.

"And indeed, even the city itself isn't looking as bad as feared," Christopher says. Despite the glut of inner-city apartments, the vacancy rate is only 2.8% and rentals are rising.

"I think our forecasts of 8%-13% price growth for Melbourne in 2016 are looking good at the end of 2015."

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Money's founding editor Pam Walkley stepped down in early 2015 after more than 15 years at the helm. Before that she was at the Australian Financial Review for 11 years, holding several key roles including news editor, chief of staff and property editor. Pam is now a senior writer for Money.