Sky high levels of vacancies, high competition among sellers, pitiful rents and an excess amount of stock on the market have combined to make these markets no-go-areas. The scary part of it is that many were once highly popular.
“Buy land, they’re not making it anymore.” These were the wise words of American humourist Mark Twain and they’re smarter than you realise.
His remark is a clear reference to the law of supply and demand. When there is a lot of demand for something and there’s not much of it, its price is likely to increase. This rule holds especially true for property.
“As property investors, we want to buy in areas with a high demand to supply ratio,” says Redwerks research director Jeremy Sheppard. “On the other hand, areas are likely to underperform whenever there is a high supply of properties and not many people want them. Those are the areas investors want to avoid.”
Sheppard says that the biggest risk to an investor is having no capital growth, or worse, negative growth. Another factor that elevates risk is the inability to offload an investment – if you can’t sell to get yourself out of trouble it will be a very dangerous investment.
“This means staying away from areas with a high number of days on the market and where there is also a high rate of vendor discounting,” says Sheppard.
A lack of cash flow is an additional risk. It means that vacancy rates and the number of landlords you need to compete with to get a tenant are key considerations.
Surfers Paradise, QLD – Houses and units
Positive Real Estate chief executive Sam Saggers says that the high-rise unit market in Surfers Paradise is particularly shaky at the moment.
“There is a very depressed market at present, particularly the recently completed stock,” he says. “Though prices have dropped, it doesn’t appear that the bottom of the market has been reached. Property values have dropped by up to 50% in some cases.
“On average, every property in the area has seen $100k stripped off its value from the last market peak. Luxury homes have gone from $4m to $2m. So unless you’re planning on buying a lifestyle property to live in, run the other way.”
HOUSES
Median price: $1,260,500
Days on market: 217
Average vendor discount: 26.7%
Vacancy rate: 3.93%
Yield: 2.84%
Stock on market: 1.09%
UNITS
Median price: $336,000
Days on market: 177
Average vendor discount: 16.5%
Vacancy rate: 3.9%
Yield: 5.8%
Stock on market: 1.4%
Palm Beach, NSW – Units
Median price: $1,392,500
Days on market: 238
Average vendor discount: 20%
Vacancy rate: 5.6%
Yield: 3.19%
Stock on market: 3.27%
North Ward, QLD – Units
Median price: $397,500
Days on market: 189
Average vendor discount: 13.7%
Vacancy rate: 2.8%
Yield: 4.04%
Stock on market: 1.9%
Main Beach, QLD – Houses
Median price: $1,130,000
Days on market: 180
Average vendor discount: 12.7%
Vacancy rate: 4%
Yield: 2.7%
Stock on market: 3.7%
