- Historical evidence of capital losses following property boom, says Pete Wargent
- Avalon, Palm Beach and Strathfield South the fastest growing areas
- Buyers advised to do their research and keep a cool head
Mr Wargent urged buyers to avoid becoming complacent and losing sight of the bigger picture by overpaying for properties.
History talks – buyers at risk of losses
Mr Wargent explained that although we are in the midst of a property boom, a look at historical market cycles will show that a peak in the cycle does not eliminate the risk of capital losses.
“It may seem hard to imagine in the current market conditions, but even in prime markets such as Noosa we saw half a decade of poor property price performance following the onset of the financial crisis.”
Pete Wargent, co-founder of BuyersBuyers
He added that off the plan unit investments made almost a decade ago during the construction boom in Sydney and Melbourne , and purchases made during Perth’s property boom of 2006, have fallen short of generating significant capital gains.
Mr Wargent cautioned buyers that popular locations throughout Sydney have experienced substantial price growth over 18 months, and prices will begin to decline as market conditions return to normal.
“Regulatory moves to limit borrowing capacity will have an impact on house prices in Sydney.
“Investors this time around have been less drawn by yield due to lower mortgage rates and lower out of pocket expenses, but still this is not a time to be tempted by apparently high yielding niche investments which usually come with a commensurate level of risk,” he said.
Areas you could be overpaying
The largest price growth within Sydney over the past 12 months occurred in the Avalon and Palm Beach areas.
The popular surfer’s haven recorded a 61.0% price growth, with the median price at $3,291,012.
Booming property growth is not exclusive to areas offering a sea change however, with Strathfield South in Sydney’s Inner West following closely behind at a 55.7% price increase.
The low-rise residential, family-oriented area has a current median price of $1,958,495.
Property boom locations in 2021
Growth rate expected to decline
Founder of RiskWise Property Research Doron Peleg is in agreeance that buyers should be wary of overpaying, particularly for low-grade properties.
“As the market was booming over the past year with sizeable percentage price increases, the combination of overbidding and purchasing lower-quality assets had few adverse consequences, as the market tide took almost every property up,” he said.
Mr Peleg continued that those who may have overpayed by 10% in Sydney were still protected as stock levels were in under supplied, and buyers were still purchasing low-quality properties at a 20% price growth.
However, Mr Peleg believes as market conditions are set to change, so too will the level of protection that buyers may be afforded when overpaying in a property boom.
“Now, with decelerated price growth in 2022, and potentially a stagnant market – or even small price reductions – in 2023, the consequences of overbidding will be more significant.”
Doron Peleg, founder of RiskWise Property Research
“Naturally, properties with sub-optimal qualities will experience lower demand as the market cycle moves on and will be more sensitive to price reductions in such conditions,” Mr Peleg said.
Tips for buyers
Mr Wargent explained that even while the market is booming, approximately 5-10% of properties will sell for a loss, so buyers should be especially diligent when making a purchase.
“Buyers need to remember that the tide will go out eventually.
“So keep a cool head, research thoroughly, and pay the right price,” he said.
For those that can’t afford premium property, Mr Wargent urges buyers that location is key, as this is one of the most important factors of an investment that will remain fixed.