Don’t be frightened by the headlines but, is it really a good time to sell the lemon?

Originally published on Linkedin.

If you’ve got an underperforming asset, the question will always be, when it is the best time to offload it? It’s often a trickier and more time-consuming asset to sell, and the temptation is also there to hold on to it for longer in case the market and demand shifts to build its value.

On the other hand, when the market is what it currently is, and the headlines are selling fear in property markets, it can be tempting to look to offload it now. For those with underperforming assets, there are also some underlying data metrics that point to now being a particularly good time to sell if you can re-invest that capital into a better-performing assets.

The data tells a powerful story of Australia’s property markets

A recently published PropTrack Property Market Outlook report looked at the year that was and what may be ahead in this coming year. The data that it presents does suggest that in some circumstances, now might be the ideal time to make a sale. According to the report, some of the key metrics at play include:

  1. In some areas, supply lifting and demand easing slightly from record highs in 2021.
  2. A lowering in buyer engagement, which peaked in August and September in 2021, but has since dipped to its lowest level since 2020. The key market in Sydney actually saw year-on-year declines in engagement.
  3. A significant discrepancy between housing prices and unit prices. The premium is currently the widest on record in Sydney (85%), Melbourne (54%), Brisbane (68%), Adelaide (67%), and close to historic highs in Perth (31%) and Canberra (73%).

Without making any predictions on what is to come in 2022, this data does suggest that for those with underperforming assets – especially if they’re units – now is a good time to sell, and for two reasons. One is that it is becoming harder to make the sale, so moving early is a good hedge against it becoming even more challenging. The other is that having the capital to buy elsewhere can be a hugely profitable move.

That widening gap between units and houses is a compelling opportunity. There are cultural drivers towards homes that suggest that this trend won’t be short term, as the ability to work from home is encouraging people to seek out larger living spaces. The rapid growth in housing value is broadening beyond the usual centres, too, as professionals can move away from their place of work for “fresher air.”

While this isn’t leading to a decline in value for units (and this will certainly be the case once migration renews and students start coming back into Australia), it is resulting in the accelerating value of housing stock relative to apartments.

Consequently, with the right house purchase your assets will grow much more rapidly than by holding on to an apartment.

How does this compare to the headlines?

If you look around the property press, you’re probably seeing a consistent set of headlines, with some variation of these six being perhaps the most common:

  • Risk of rates rising
  • Property prices having peaked
  • More supply entering the market
  • Lower auction clearance rates making it harder to sell
  • Higher average days on market, meaning selling is taking longer
  • Affordability issues, meaning fewer can afford to buy

Based on those headlines it’s easy to understand why people might want to rush to put their house or investment property onto the market!

However, the standard advice in property remains: don’t make short-term decisions based on blips in the market, or predictions that can be as reliable as a weather report. As we’ve just seen in the data, now is a good time to sell an underperforming asset – the lemon – but it should be done for the right reasons. It’s an opportunity to acquire better property and assets.

Otherwise, don’t let the headlines sway you to take rash actions: there is nothing to suggest that taking a long-term view of your property portfolio, and holding on to assets unless you’re confident you can add more value to your portfolio elsewhere, has suddenly become a poor strategy.