People talk about property a lot (I know I do). As with any widely discussed topic, myths are bound to arise and the property industry provides no exception. Here are 5 of the biggest property myths around at the moment.
Property prices will always appreciate.
We will forgive you for believing this one. It seems like prices in the property industry are constantly on the rise, particularly in capital cities such as Sydney, Melbourne and even Brisbane. Unfortunately for investors, property, like any other asset or investment, is cyclical. The market will be stable, then the market booms and expands until it hits a peak, at which point the market will correct itself and prices will decrease. It will, of course, hit a low point, known as a trough, where the market will start to recover and eventually expand again, bringing the cycle back to the start.
A perfect example of this myth are the Australian mining towns. With the mining boom a few years ago, property in these towns hit new highs, only to fall by as much as 50% now that the mining boom is over.
The moral of the story is, even when prices are increasing long-term, there will still be corrections where prices go down. The value of property isn’t ever-increasing.
Property development is an easy way to earn some money.
It seems like everyone you meet is a property developer. In Brisbane, you can see new developments going up left, right and centre.
People think developing property equals an easy profit; however, that’s not the case. There’s a lot more involved than meets the eye. You have to make sure your development is feasible and you absolutely have to do your due diligence. The factors involved include the cost of land, the cost of holding land, the delays, council regulations, building costs, and much more! Good developers know where to allocate their time and account for every possible obstacle and outcome.
It’s easy to find the next ‘big suburb’.
Everyone wants to know where the next booming suburb is. The truth is that once you notice a suburb emerging as a hot spot, it’s because everyone is talking about it. At that point, it’s already well into its boom (probably near the top of its cycle) and you’ve missed out on reaping the rewards.
Low interest rates are a good thing for first home buyers.
Yes, low interest rates do mean you’re paying less interest on your loan. However, on the other side of the coin, low interest rates also mean that the interest earned on buyer’s savings are low too.
Low interest rates make it harder to save your money and that can impact people’s ability to buy their first home.
Additionally, low interest rates often mean prices rise. Investors can take advantage of this by tapping into their portfolio equity to ‘squeeze out’ first home buyers.
You should buy the worst property on a good street
This statement is only true if buyers care a lot about location and not at all about the property itself. Location is often an important factor considered in property purchases, but it’s certainly not the only factor.
People who do this end up doing two things. Firstly, they are overpaying for a property that is in bad shape and, secondly, they will spend a fortune on renovating or rebuilding.
Get in touch with one of our property experts at Red & Co to have your property questions answered. Call 1300 88 73 28 or email [email protected].