ESCAPING THE POST-BOOM PITFALLS
September, 2005
Perth's buoyant real estate
market over the past few years has created some potential pitfalls
that, beyond the boom, are likely to catch out uneducated investors,
according to buyer's agency Property Wizards.
Managing Director Liz Sterzel
said that while the end of the boom was still a way off, by
beginning to be more careful about what suburbs they invest
in, buyers can ensure they pick up boom-proof investments that
will perform even after the market slows.
"The main trap for buyers will
be choosing areas that have performed well during the boom,
but that are unlikely to continue to shine over the long term,"
she said.
She said the recent market hype
had seen many previously long term low growth suburbs enjoy
significant growth in what's been dubbed a "catch up."
Examples included suburbs like
Calista, Westfield and Ferndale.
The median house price in those
areas had grown at 4.9%, 4.7% and 5.8% a year respectively in
the 15 years to June 2002.
In the past 5 years, each suburb
experienced considerably higher growth - with house values in
Calista growing at 15.1% a year, Westfield 13.6% and Ferndale
13.9%.
Ms Sterzel said in dollar terms,
Calista had performed superbly over the boom period.
"Previously, Calista house prices
took 15 years to double in value, but over the last 5 years
they also doubled in value," she said.
"But that doesn't mean it will
automatically deliver in the future.
"The key point for investors
is, that some suburbs which have enjoyed similar success, will
continue to deliver in the long term - but probably 4 out of
5 of them will not.
"That's because many areas grew
in value solely because of the strength of the boom, in other
words, there were virtually no valid factors driving growth,
which makes them risky investments in a post-boom period."
Ms Sterzel said the difficulty
for investors would be in looking "beyond the hype" of the boom
to determine which of these "catch up" suburbs would cut it
over the long term.
"It's not enough to say that
a particular suburb has been a winner over the past year or
two and will therefore power ahead in the future," she said.
"When the market softens only
those with overriding reasons to continue growing, regardless
of the property cycle, will be successes."
Ms Sterzel said there were several
factors to consider when deciding if a suburb was a dud or a
gem.
Factors suggesting growth may
continue include:
