Be Cautious where you seek advice.
The Home Buyer and property Investor show was in Melbourne last week. It’s one of those events during which so many free tickets are handed out; it makes me wonder if anyone actually pays to attend? The show is advertised with the motto of being ‘dedicated to educating home buyers and property investors of all levels’ and having attended many shows during its 6 year run, I can assure all home buyers or investors, if they don’t come out more confused than when they headed in, something’s amiss!
“Now is a great time to buy” – runs the advertisement – and boasts a host of ‘independent’ advice from ‘trusted, reliable experts.’ Let me be the first to say, as with other organisations, ‘trusted and reliable experts’ do exist within the property industry. However, filtering them out from the mishmash of stands and the 80 or so speaking events is not an easy task for any armchair property investor.
‘Independent’ is a funny term. To the layman, it hints at someone who is ‘free of bias’ – a qualification not many would be able to claim. Every professional has met with influences that sway their judgements and learned scepticism to some degree or another. However at a corporate level, seeing the term independent would ‘assume’ the provider has no ‘relationships’ or affiliations that would direct their advice against the best interests of their customers – and these qualities aren’t always easy to identify.
The financial industry has struggled with the term ‘independent’ for quite some time. In 2010 the IFAAA (Independent Financial Advisers Association of Australia) was established to try and filter out those who could truly claim to have no ‘hidden’ associations.
Their website identifies the following criteria as being ‘independent’ without which, ‘low quality advice (would be) more likely’
- “Do not have any ownership links or affiliations with product manufacturers;
- Do not receive commissions or incentive payments from product manufacturers; and
- Do not charge asset-based fees.”
How much policing goes into checking the ongoing performance of each ‘independent’ advisor on the database is unclear, however, at the very least, it sums up what customers would expect when confronted with the word.
Section 923 of the Corporations Act lists its own restrictions when using the terms ‘independent, impartial or unbiased.’ However, these are broadly limited to receipt of commissions (unless they are fully disclosed and rebated to the client) receipt of benefits, or the need to achieve various ‘provider’ volumes when referring business.
The Home Buyer and Property Investor show has no such ‘gold standard.’ Obviously, most of the speakers and traders pay to promote their wares, and a good proportion are openly associated with various providers and manufacturers.
Within the show itself, you’ll discover a broad array of developers, mortgage brokers, property ‘experts’, and so forth, each promoting their own vested method to achieve that ‘pot of ‘retirement’ gold.’
By the time you exit the show, you’ll have been lectured to invest in the USA, negatively gear a portfolio, positively gear a portfolio, build, develop, purchase in mining towns, purchase within 5km of capital cities and so forth, – from exhibitors affiliated with providers and in receipt of commissions, from many different offshoots.
To inexperienced ears, every piece of well delivered advice can seem persuading, hence the need to do plenty of homework prior to commitment. However, even taking into account the modest number of exhibitors who do fall under the definition of ‘independent,’ I have a problem with using the term to promote the show – it’s simply incorrect and arguably misleading.
Having said this, the show is always useful for gauging a ‘feel’ of current sentiment, and from the feedback I’ve received from colleagues who attended, numbers were significantly down, even comparative to last year – which was also notably quiet.
As improving sentiment tends to mirror rises and falls in median values, a cautionary approach to calls of ‘market recovery’ would seem appropriate – although I don’t doubt at a micro level, this is exactly what we’ll see in ‘some’ pockets of our cities.
Transaction levels have improved over the month of September – due in part to home buyer incentives in a few states, recent rate drops, and rises in rental yields which have stimulated investor activity. However, ease of affordability on one level, can easily be outweighed by other struggling segments of the economy in which case any uplift in transaction levels – or for that matter median prices – may remain marginal.
Of course, the one piece of advice you won’t hear at the home buyer show is anything other than ‘now’s’ the right time to purchase – especially as many view interest rate drops as the sole indicator market conditions are about to improve.
Other excuses used to inspire buyers out the woodwork at property shows are the so called ‘hot spots’ all of which range from rural mining towns, to regional townships, and inner city hubs.
Hot spots seem to induce the perception that property prices are about to soar and investors lap the information up as if it’s a piece of insider trading advice. Some advocates base their assessment of a ‘hotspot’ on historical data – others wave this aside preferring to look at new infrastructure projects assuming a ‘rush’ of population growth will add fuel to the fire without any assessment of what may oppose the assumed price rises.
If you purchase at the beginning of a mooted boom and leave at the end you’ll be a winner – but to do this you need to both speculate and gamble and one thing history does teach us, is where there’s rapid inflation, there is also a period of sharp ‘correction.’
To be honest, a hot spot cannot be truly identified until a buyer’s unique circumstances and property investment goals have been assessed. To do this, takes more than a property expert – and usually begins with a trip to the individual’s financial advisor.
A hot spot for one buyer looking to balance cash flow, will be different from the equity buyer looking for growth – and unless the ‘property expert’ has a crystal ball to hand, all such information should come with a lengthy disclaimer attached.
‘Hares’ who rush in based on a whimsical promise of positive returns or double digit growth, may outpace the tortoise investor in the short term, but every piece of historical data we have to hand proves it’s tortoise who wins in the long run. In other words – those who enter property investment with a long term approach, to hedge against inflation and ride out inevitable short term volatility – are ultimately the winners in the game of building wealth.
Gambling and property markets don’t complement each other; however it never quells the thirst to happen upon riches. Statistics cover a multitude of ‘property sins’ and never more so when associated with ‘hotspots.’
If someone’s encouraging you to ‘rush in’ based on an imminent rise in median figures or surge in population growth – I’d advise taking a step back and finding an opposing argument for each point presented, because you won’t be warned of rain clouds ahead if all you ever get presented with is a sunny forecast.
All this aside, before you heed the calls to ‘buy now’ which are sprouting from all four corners (except perhaps the camp of Mr Keen) purchasing a property for investment or occupation is a decision each buyer must take based on their own individual circumstances and should not be dictated by drop in rates, home buyer incentives, advice from property magazines, articles, or home buyer shows which liberally use terms such as “market cycles” or “property clocks.”
They are all designed to inspire consumers to spend with a ‘retail sale’ mentality and in such instances, mistakes are often made. Instead it’s vital to keep a long term considered outlook and to do this, it can arguably better to avoid those areas of which consumers ‘flock.’
Of course, the key to any wise investment is in education – and I’ve written plenty on the subject in previous columns. However, it remains the case that many come out of university hand in hand with a degree, credit card, ability to earn, but little idea how to purchase a property, invest in the stock market, manage their super account, or control debt. Trying to gain such knowledge via self education is also littered with pot holes especially if you glean it based on a mishmash of vested advice.
There’s no easy answer, but I can promise one thing. You’ll never comfortably build wealth chasing a bargain or timing a boom. Work hard to save hard, but invest with a slow and considered approach based on what you want to achieve in x number of years, to secure your family’s future. Hot spots will come but if you’re not careful, they’ll take your profits with them.