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Far too many investment decisions in Australian real estate are driven by herd mentality and FOMO (Fear Of Missing Out). But it helps to explain why most Australians who attempt property investment have a bad experience.
When people are driven by an impulse to do what others are doing (the herd mentality) or to get in because they don’t want to miss all that lovely capital growth they keep hearing about (FOMO), they can only be buying well after the boom started.
Few people ever got rich following the masses. Some will have succeeded by leading the masses, but the truly successful people are more often those who run in the opposite direction.
Driven by either lack of confidence or lack of understanding, both the 'herd mentality' and FOMO are the cause for most people buying when prices are high.
Conversely, when the market is down, they stay out of the market. They’ll get back in when they read that 'the herd' is running again... Madness!
Right now, the Perth market is down. We’ve been suggesting to people it’s a great time to consider buying there.
Perth real estate is likely to enjoy a return to favour in 2016 primarilty due to a combination of real estate affordability, continued low interest rates, relatively strong yields, and increasing consumer confidence.
Key to holding property successfully is cashflow management. From a cash-flow perspective investors will recognise that Perth’s gross rental yields for houses (4.1%) and apartments (4.1%) compare favourably against the returns being achieved by investment properties in other capitals.
Housing affordability has further improved in Perth with the latest preliminary reiwa.com data showing that Perth’s median house price is at $535,000 for the three months to 30 November.
According to Real Estate Institute WA (REIWA) President Hayden Groves said the median house price was consistent with the Real Estate Institute of Australia/Adelaide Bank Housing Affordability Report, released Dec 3 2015, which showed that housing affordability in WA had improved across the September quarter and also the year, with the proportion of income required to meet loan repayments now at 23.8 per cent.
Perth hasn’t been this affordable for home buyers for several years, with our latest preliminary data for the three months to November 30 showing that 42 per cent of sellers are adjusting their selling price in order to sell.