How to use statistics when buying property

Regular readers will know that I am very wary of using statistics in property decisions. Why? Because they can be inaccurate and misleading (usually no two sources agree). And because they can be manipulated. And then they can be slow to accurately reflect what is actually happening in the market (we see changes pretty much immediately, whereas economists are always reporting historically).

Take median prices for example. Some years ago, before all the massive unit development in Alexandria, median unit prices were quite modest, say, for this illustration, $350K. Then a massive industrial site was converted to residential and there came a flood of brand new apartments onto the market. These sold at a premium and were more valuable than most of the existing stock. The volume of new apartments sold had a marked effect on the median unit How to use statistics when buying propertyprice, which shot up to something like $420K in a year. So an investor who only looks at the numbers might think “Alexandria is the place to buy – prices went up 20% last year whereas neighbouring suburbs only went up 10%”.

See what I am getting at?

Another example. We are fond of looking at graphs that show the price brackets in which the majority of property sells in a particular suburb. The logic is that if you want to add value without overcapitalizing, buy in the bracket under the most popular. Your renovations should then move your property into the bracket that has the most buyers. Or if you want a “set and forget” investment, buy within the most popular price bracket. That way, when you come to sell, you will be appealing to the widest range of buyers. You get the drift.

But there are exceptions to this rule. Balmain, for instance. There are very few sales over $2M. Normally a short bar on this graph this would indicate that there is little demand for property in that price bracket. But in Balmain nothing could be further from the truth. There are always family buyers desperate for the space that $2M+ buys but there is usually a chronic shortage of listings because there are more workers cottages in the area than family homes.

The bottom line? Statistics can be useful but should never be used as the sole basis for making a property purchase decision. They can never be a substitute for pounding the pavement and getting to know your target market.

 

First published:  20 February 2014

 

How to make money faster

Is the property market in a growth phase or just a spike?

 

Please note:
Good Deeds buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.

SUBSCRIBE TO OUR WEEKLY BUYER TIPS

Free e-book for Owner Occupiers

7 Steps To Buy Your Dream Home

Free e-book for Investors

How to Choose a Low Risk Investment Property