WHEN IS THE BEST TIME TO BUY A PROPERTY?
The “correct” time to buy is when market sentiment is low. This increases the potential for an upward swing in the cycle. Purchasers should try to enter a growth cycle as soon as a trend is recognisable. This occurs and can be quantified when the asking price is less than the PricingReality™ value.
Most purchasers wait to see high growth reflected in an area (usually in newspapers or financial reports) before they act. This is too late to enter the market. The later a purchaser enters the cycle, the more overpriced the properties will be. This, in turn,” will reduce the capital growth achievable. As greater numbers of purchasers create demand the prices increase – creating a high market sentiment.
PROPERTY SHOULD NOT BE PURCHASED AT A PRICE ABOVE THE PricingReality™ VALUATION.
VALUATION OF PROPERTY
The traditional methods of determining the value of a property are:
COMPARATIVE PRICING VALUATIONS
Expert valuers include panel valuers, bank valuers, real estate agents and so on. The weakness in this method is the fact that ‘comparative sales’ form the basis of the valuation assessment. For example, at the peak of a cycle, where 80% of purchasers have overpaid, the valuer will use these recent skewed sale prices to ascertain a comparative ‘fair market’ value.
QUANTITY SURVEYORS REPORT
The quantity surveyor estimates the actual replacement cost. This is a very accurate exercise, but does not take market factors into account. For example, if an investor purchased a 1,000 square metre block of land some 500 km out in the greater desert wastelands, then the land might only cost $5,000 simply because there is no infrastructure in the area – no services, roads or economic activity. A $300,000 residence is then built on the land and; the quantity surveyor will appraise the replacement cost as $305,000. Could this property be rented? Could one reasonably sell the asset? The investor would have over-capitalised to the tune of $300,000 plus their time and effort.
Hence both these methods are useful guides only, but are insufficient in meeting the true value test.