Property investors who have adopted a “buy and never sell” mentality could be costing themselves money as they “blindly” wait for the prices to rebound.
That’s according to online property research platform Sell or Hold, which has identified locations across the country where prices will not even keep up with inflation in the next three years.
Sell or Hold, which uses a “sophisticated algorithm” to calculate potential capital growth, says its analysis shows nearly 860 out of the 6000 property markets it tracks across the country will likely have negative growth out to 2020.
The firm has revealed its “worst” five areas in each state and territory, a mixture of capital city and regional suburbs.
“They’re all expected to have growth that is not worthwhile, so if you’re a property investor you might consider offloading,” said Sell or Hold head of research Jeremy Sheppard.
“It’s really quite broad. Some are classic oversupply issues, unit markets where developers have gone crazy. Then there are others like the mining town Blackwater in Queensland, that’s just a disaster area now. We expect the changes in financing with the banking royal commission to affect a broad range of areas.”
Mr Sheppard said the modelling was based on supply and demand.
“If demand exceeds supply obviously prices go up, the other way round they die,” he said. “What we’re looking for is markets that have the lowest demand to supply ratio, markets which over the next three years are unlikely to keep up with inflation and some might go backwards.”
The research platform determines whether investors should hold or sell based on a number of metrics that takes into account entry and exist costs such as selling commission, stamp duty and capital gains tax.
According to the analysis, 40 per cent of Western Australia’s property markets were set to record negative growth over the next three years. That number was 39 per cent for the Northern Territory, 17.6 per cent for Queensland and 13.2 per cent for NSW.
Mr Sheppard said inflation was chosen as a “baseline comparison” to show dwellings in those markets aren’t worth holding for growth reasons because they would be “worth less than they are today in real dollar terms”.
Investors “might be better off to sell so they can take advantage of opportunities in other markets”. He noted there were hundreds of other markets where prices are “set to soar over the same period”.
RealEstate.com.au chief economist Nerida Conisbee said the modelling was “interesting” but she didn’t agree with the conclusion for each suburb.
“It’s not completely crazy, they’ve definitely thought it through,” she said.
“Some of the suburbs make a lot of sense, they do seem to have a focus on high development areas, we do find often those don’t see the best capital growth long term.”
But she disagreed with the focus on mining towns.
“I’m not sure that will quite play out the way they’re thinking,” she said. “We’re finding many of them are seeing pretty good rental growth again. Roxby Downs (in South Australia) has actually seen 20 per cent growth in rents. That’s one thing to consider.”
She also disputed the inclusion of Alphington in Melbourne and Cockburn Central in Perth. “We are seeing premium Perth pick up, similarly Alphington I do think the median will lift,” she said.
With recent price falls, Ms Conisbee said investors had a right to be nervous.
“It’s definitely justified if you’re in Sydney,” she said. “The market has taken a pretty sharp turn and prices have fallen quite a bit already. The negativity in the media is not really helping at the moment.”