Don't buy in a hot market. Only a fool would choose to buy in Sydney.
Don't buy in a hot market. Only a fool would choose to buy in Sydney.; It’s always the same scenario - after five or six months of auction frenzy, it will all fizzle out
Tweet Topic Started: 14 Oct 2013, 12:01 PM (1,443 Views)
I’ve seen many articles over the past few weeks advising people about how to buy in a “hot” market.
Amid all the “expert” commentary the only sensible advice I’ve read came from Perth property professional Gavin Hegney, who said: “My first thought is that buyers should not be aiming to buy in a hot market.”
Hegney’s thoughts mirror my own advice to investors on how to buy in a boom market: “Don’t.”
It’s really that simple. The only explanation for investors buying in a sharply rising market is the herd mentality, otherwise known as stupidity.
Here’s how it is for property investors at the moment. Australian has many different property markets. Many of them are rising at the moment. Very few of them are “hot”. Only a few have anything ressembling boom conditions and the jury is still out on whether these areas are genuine boom markets.
Investors have the whole of Australia from which to choose. Only a fool would choose to buy in one of the few markets where competition is extremely high and buyers are paying silly prices to secure properties.
Warren Buffett, arguably the most successful investor ever to have lived on planet Earth, preaches the simple philosophy that you buy when others are selling and sell when others are buying. It’s the opposite of the herd mentality that drives most Australian property buyers.
Buffett also said: “Profit from folly, rather than participate in it.”
The greatest folly current occurring in Australian real estate is Sydney’s auction frenzy. People participating in it are, by Buffet’s definition, fools. They are people with more money than sense. Buy in haste and repent at leisure is the unwitting catchcry of such people.
If you don’t have to buy in these areas but are buying anyway, you’re part of the folly.
Possibly there are home buyers who need to buy now and have little choice but to compete with other frenzied punters.
But investors have no such excuse. They have no pressing need to buy in these locations. The whole of Australia is their market and those with common sense and a healthy research ethic will be looking elsewhere.
There are hundreds of locations around the nation where investors can buy well with good prospects for future growth.
One of real estate’s oldest cliches is that you make your money when you buy, not when you sell. This means you buy at a good price, when the market is down.
You cannot buy well in some of the Sydney markets where people are paying way above the reserve price at auction or making a high offer before auction to secure a property.
This sort of folly has happened before in Sydney and Melbourne. It’s always the same scenario. Auctions get on a roll in the millionaire suburbs, people afraid of missing out pile in and buy at inflated prices and, after five or six months of frenzy, it all fizzles out.
Then prices fall. Often the decline in values is as much as the previous rapid rise.
Don’t be part of the folly. Look elsewhere. There are many hundreds of better options for well-researched investors from Darwin in Adelaide and from Perth to Townsville.
I agree with this. I was originally ready to buy in 2010 but pulled out after going to some completely retarded auctions where buyers would get caught up int he frenzy and paying more than 20% over reserve. When you buy property its very important to get a good price or you may not see any gains for a long time. When I bought in mid 2011 the frenzy was well and truly over with some great deals to be had.
I think that now is very similar to 2010. Its a short term rally underpinned by super low interest rates purely driven by investors. My guess is that it will at the very least settle down and fizzle out early next year, hopefully presenting us with some good buying opportunities.
On that note I was having dinner with a very wealthy family friend recently who showed me the paper work for 5 properties he sold in that month alone. He called the buyers stupid sheep and couldn't understand what the hell they were thinking paying that much.
I agree with this. I was originally ready to buy in 2010 but pulled out after going to some completely retarded auctions where buyers would get caught up int he frenzy and paying more than 20% over reserve. When you buy property its very important to get a good price or you may not see any gains for a long time. When I bought in mid 2011 the frenzy was well and truly over with some great deals to be had.
I think that now is very similar to 2010. Its a short term rally underpinned by super low interest rates purely driven by investors. My guess is that it will at the very least settle down and fizzle out early next year, hopefully presenting us with some good buying opportunities.
On that note I was having dinner with a very wealthy family friend recently who showed me the paper work for 5 properties he sold in that month alone. He called the buyers stupid sheep and couldn't understand what the hell they were thinking paying that much.
I agree with this. I was originally ready to buy in 2010 but pulled out after going to some completely retarded auctions where buyers would get caught up int he frenzy and paying more than 20% over reserve. When you buy property its very important to get a good price or you may not see any gains for a long time. When I bought in mid 2011 the frenzy was well and truly over with some great deals to be had.
I think that now is very similar to 2010. Its a short term rally underpinned by super low interest rates purely driven by investors. My guess is that it will at the very least settle down and fizzle out early next year, hopefully presenting us with some good buying opportunities.
On that note I was having dinner with a very wealthy family friend recently who showed me the paper work for 5 properties he sold in that month alone. He called the buyers stupid sheep and couldn't understand what the hell they were thinking paying that much.
Yes that would have worked in 2010/11 but it depends where this one ends up whether it's a good idea to buy or hold off now.
“You Keep Using That Word, I Do Not Think It Means What You Think It Means” - Inigo Montoya
Yes that would have worked in 2010/11 but it depends where this one ends up whether it's a good idea to buy or hold off now.
Regardless of where it ends up its better to hold. For now. If you buy now you may very well be caught in a frenzy and competition is fierce. There is little room for negotiations. This cannot last at this rate. Its impossible. Prices may stay higher and even grow after this fast rise more but not at this rate. And if they do keep on going like this you are most likely in bubble territory anyway.
Yes that would have worked in 2010/11 but it depends where this one ends up whether it's a good idea to buy or hold off now.
I guess it also depends whether you have to be in Sydney or not as well. If I had no particular reason why it had to be Sydney or Melbourne, they would be well-and-truly crossed off my list. Even if I lived in Sydney I'd be inclined to rent in Sydney and buy an IP somewhere else.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
I guess it also depends whether you have to be in Sydney or not as well. If I had no particular reason why it had to be Sydney or Melbourne, they would be well-and-truly crossed off my list. Even if I lived in Sydney I'd be inclined to rent in Sydney and buy an IP somewhere else.
We need to be in Sydney and moreso need to be within striking distance of Westmead Childrens Hospital. We had just gotten ourselves to a point where we were looking to buy but that has slipped away due to the $100k plus jump in prices.
Not quite sure what to do as now our landlord is selling. Definitely not enjoying this moment in time
Regardless of where it ends up its better to hold. For now. If you buy now you may very well be caught in a frenzy and competition is fierce. There is little room for negotiations. This cannot last at this rate. Its impossible. Prices may stay higher and even grow after this fast rise more but not at this rate. And if they do keep on going like this you are most likely in bubble territory anyway.
It was something overseas that caused panic, mayhem and collapse of the bubbles in other countries – who knows, that might be just what we need to pop our bubble. It has to be something that sows a seed of doubt in the mind of buyers, and particularly investors seeing that they make up the bulk of the real estate purchasers. Just imagine if the Australian government even hinted that negative gearing would be tampered with – I’m sure that would prick a sizable hole in this bubble. I know that realistically, though, it would be something that happens abroad that will eventually get the bubble here to burst under its own weight. When that is, is anyone’s guess.
Buying in a hot market? The first rule is to keep calm and carry on. Prices may be rising, but that's no cause for alarm, says Veronica Morgan, the principal of Good Deeds Property Buyers and co-host of television's Location Location Location Australia.
"We see a lot of silly panic purchases from buyers who are afraid they're going to miss out," she says.
"They then end up paying ridiculous premiums on a property, instead of stepping back for a moment and evaluating what a home is really worth."
For nothing takes the place of good research, particularly in a rising market.
Monique Sasson Wakelin, director of Wakelin Property Advisory, says that should take place long before anyone attends an auction or enters into a sales negotiation.
"You need to look at the property you'd like to buy in the light of prices and the quality of comparable properties," she says. "And in a rising market, I would probably factor in an additional amount, say 10 to 15 per cent, you may need to secure it."
Yet competition is so intense at auctions that many are trying to buy before auction, but this can be fraught with danger.
"Tell the agent you're not prepared to get into a bidding war," suggests national Domain editor Stephen Nicholls. "Ask for the figure that will take the property off the market. Otherwise you could be better waiting until auction day."
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