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auction result was the out-of-line sale.
“From my point of view I have to
say ‘sorry but the finance is valued at
$520,000 to $530,000’ and the vendor
then has to throw more money towards it
(rather than obtaining a higher loan). That
pretty much duds the deal.”
Most buyers who have already bought
at auction tend to then shop around
and find a valuer who is more lenient or
inexperienced, Smith explains.
But he believes this is a dangerous
tactic and could also land valuers in a lot
“If it’s a 90 per cent lend on only
$530,000 (rather than $570,000) the
owners have to kick in an extra $40,000.
That creates massive panic.”
He adds this is happening with many
sellers and to solve the problem, they’re
having to cross-collateralise (i.e. use more
than one property as security for the loan).
Rather than go through the headache
and potential heartbreak, Smith says this
problem is easy to avoid by simply getting
that independent valuation in both a hot
and cool market.
He’s also concerned the market
is starting to cool as shares and
superannuation begin to strengthen,
therefore making property less attractive
than a few years ago. API
to happen now. In particular, western
Sydney is now “really overpriced” and
buyers would be better off waiting until
the demand dissipates.
“Even if rates are at historical
lows, there’s only so much demand,”
“It forces prices to reach a ceiling and
people say ‘I’m not going to buy there’.
There’s more chance of regional parts of
Sydney catching up to Sydney.”
Wilson also expects things to slow down.
“Affordability constraints and waning
economic activity will act to moderate
price growth through the year,” he says.
“Price growth in Sydney and Melbourne
is set to be significantly less in 2014
compared to 2013, with most activity
occurring over the first half of the year.”
He estimates price growth will rise
between five to seven per cent over 2014,
with most of that occurring in the first half
of the year.
Hegney Property Group chief executive
Gavin Hegney says ‘fear of missing out’ is
now driving the market.
“Fear of missing out is the overshoot,
that’s why the market will adjust
backwards,” he says.
“It’s now close enough (to the peak) that
you would want to wait and see if the
market settles. You could do something
else with your money in the interim that
will probably outperform. There will be
some correction, whether it’s interest
rates or lending policies and the herd
He says the main sign the market is
overpriced is because buyers are anxious.
“As a valuer, you’re always looking
to put a value on a property with a
willing buyer and a willing seller and
neither party anxious. Now buyers are
over-anxious, so we’ve already
dislocated from fair value. There are
fundamentals that start a market,
speculation finishes it. People
think because so many people are
buying right now, the risk is lower.
But the reality is the risk is higher.”
Destiny founder Margaret Lomas
agrees with Hegney.
“I’d be very careful in Sydney,
as although you’ll still see some
growth, the large growth has now
happened and the high median price has
resulted in much lower relative rental
yields,” she says.
“As the gap between the yields and the
expenses on an investment grows, the
pressure for greater and greater growth
also increases. Yet when a market is hot
and growing so quickly it becomes closer
and closer to running out of steam. So
the kind of growth now needed to make
the negative cash flow worthwhile is
unlikely to come as this market starts its
¿ OVERWHELMING AUCTIONS
No matter where you buy and what you
choose to pay, McLennan Steege Smith
and Associates valuer Brett Smith warns
investors to get an independent valuation
before going to auction and not to go
beyond it in the heat of competition.
He has witnessed people pay far too
much at auction, then panic when they
can’t get bank finance once it’s too late.
“The other day a sale went through in
Wentworthville at $570,000 at auction,”
“I had eight or nine sales at $520,000 to
$530,000 (in the same block) and the two
paid $570,000. The argument was the
auction result is the market today. But the
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