How to profit from changing market conditions
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When a market is transitioning it takes a while for both sellers and landlords to catch up.
If a market is softening, for example, people will often stick to prices that they think they already know because they’re in denial to a degree. They falsely believe that their property is protected by the price slump.
In Sydney, the market is down by about 2.1 per cent compared to the December quarter, yet plenty of vendors still think it’s the glory days of 2016 or early 2017. This could also be because selling agents aren’t being realistic or truthful with their vendors, so they list at a higher price and then condition the seller to reduce the price because of the “market”.
I’ve seen it happen during the GFC as well, when people were off by at least $100,000 in some cases. However, the same is true for markets that are strengthening. Vendors are often not clued up to the fact that the market is on the move so are still listing at yesterday’s prices.
So, it works both ways, and buyers can profit from both scenarios.
One way to do this is when a house market has peaked, and the unit market is set to follow, but many people don’t know that. The unit market often follows because of affordability and superior yields, as long as there isn’t an oversupply.
However, invariably, because the unit owners haven’t been patient enough, they start dumping their properties on the market when house prices start to fall or stagnate. A great example is the Logan market in Brisbane where we are starting to see some unit owners offloading their units because they’re frustrated they haven’t experienced any price growth.
The thing is that growth is just around the corner, but they don’t know it. It’s human nature when this starts to happen; I’ve seen it in property cycles all over the country. Often, they’re also offloading units at the price that they bought at because the unit market has been soft when the house market was strong.
Yet they fail to realise that the unit market is probably about to strengthen so they’re missing out because of their lack of understanding as well as their lack of patience.
Opt for X factor
When a vendor refuses to accept that prices have fallen, the best buyer strategy is to stubbornly hold on to your money because they are the ones who will have to concede first. There are plenty of other properties out there, but they have only one to sell.
If you’re adamant about buying a property in a slower market, then you should opt for one that you can add value to. If you buy a simple buy and hold, the price is likely to slide backwards, so you need that X factor where you can push the value back up.
You must always have liquidity, you see, which means being able to make your money back in any market if you need to sell it. In changing market conditions, buying at auction also presents opportunities but the best time is obviously once the property has been passed in.
That’s because finance can be more difficult in softer market conditions and often the vendors have a much higher reserve than what the property is truly worth. When the property is passed in, therefore, they will have received an education on real market conditions, which you can use to your advantage. Plus, their motivation may be higher.
At the end of the day, the best time to buy is when you are in the position to do so – regardless of the market conditions. However, a transitioning market can often create an imbalance between those who know what’s really happening and those who do not.
And that’s a great place to be for educated investors.
This article provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such as it does not take into account your personal circumstances or needs. Professional advice should be sought prior to any action being taken in reliance on any of the information.