Is the liquidation of “dud” assets boosting the red-hot areas of Australia’s property markets?
Originally published on Linkedin.
Two sets of data published over the last week have driven home just how hot parts of Australia’s property market are running right now.
As reported on realestate.com.au, one in seven Australians are considering a property purchase within the next six months. Half of those are investors, and the other half are looking to purchase a house to occupy.
Meanwhile, the PropTrack Housing Market Indicators Report has noted that the historic highs of views per listing on realestate.com.au, and record email enquiries to agents and developers, is likely to continue on in October.
Despite the extensive reporting in the media cycle from earlier in the year that deposit prices alone have escalated over $100,000, these numbers demonstrate that the appetite for property among Australians has not yet started to cool.
In fact, the opposite is occurring. Investors are so incentivised to invest in new property that they are rapidly liquidating “dud” assets, to access assets to make new investments immediately. They are proving to be more than willing to do this at a loss – sometimes a significant one – if it frees them to invest in the hotter property markets.
Investors are so incentivised to invest in new property that they are rapidly liquidating “dud” assets, to access assets to make new investments immediately.
There are three key factors that can determine whether an investment has proven to be a “dud” property:
- Timing. If the property was purchased at the wrong time in the cycle, with values near their peak, then the property’s price may languish or even decline. What is interesting about this is that while there are areas where property prices have fallen in Australia (and sometimes significantly, in the case of remote regional areas and mining towns), there are indicators that the current surge in pricing across most of the in-demand parts of Australia could start to slow itself, meaning that people liquidating dud properties will want to be careful about where their new acquisitions will be, lest they time themselves into a new dud acquisition.
- Price. Paying too much for a property can turn it into a dud. Currently, the explosive demand among buyers means that for in-demand properties it is entirely possible that, without the right advice, an investor could find themselves overpaying in their efforts to secure an ideal property.
- Location. To tie into the above, suburb-to-suburb the growth in property value is not even and investors will want to make sure they’re not paying a premium for property in an area that’s not growing at the rate they’d like.
If the property isn’t performing as you’ve expected in the past three to four years, then the chances are that it’s a dud. The question is whether it’s the time to accept the losses, sell and re-invest what’s left, or if there’s the potential to turn the dud into something that will, at least, be profitable.
What is important when the market is as volatile and running as hot as it is right now, is having the right advice with which to make the right decisions. Agents are certainly benefitting from the increased competition in real estate, so whether you are looking to liquidate an asset or be one of the many Australians competing to make a purchase, having transparency and the right information to inform your decisions is key.
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