Removing the emotion from the FOMO frenzy
Some West Australian investors are being lured into the market by the FOMO (fear of missing out) phenomenon. Record low interest rates and government incentives are encouraging the buying frenzy but this course of action is often ineffective to the extreme.
Increasing your budget to keep up with the property price surge might seem like a suitable course of action while Perth’s median house price remains around the $500K mark.
But interest rates won’t remain at these historic lows forever. As an investor it’s imperative that you factor rate increases into your budget and investment strategy.
It’s also crucial that you take the emotion out of the process and consider the financial impact of rents reducing over time.
Don’t panic buy because you hear the ‘Big Four’ touting a 20 per cent rise in house prices over the next two years. Many are aggressively buying because they are chasing yield or they need cash flow. But the combination of increased buyer demand and rising house prices could have a harsh impact on housing affordability.
You need to be thinking with your head and not only with your heart. FOMO is quite obviously motivating many buyers at the moment, but if you’re investing you need to make sure it’s not the only reason you’re buying property.
Some Eastern States’ agents are also reporting that the minute properties are under contract they are being put back on the market. This “flipping” often occurs in a FOMO market when buyers make offers before the bank has even approved their finance. This means in many cases buyers are exceeding their budget significantly.
Fortunately it doesn’t seem to be happening in the West and it’s something I would never recommend because there’s a good chance you’ll end up falling flat on your face. At JPG we never accept offers, on behalf of our vendors, from buyers who don’t have pre-approved finance.
With housing finance in Western Australia more than 80 per cent higher than it was 12 months ago and the prospect of low interest rates until at least 2024, it’s hard to ignore the intense activity in the property sector. But the key is to remember that property is a long-term investment and over time it can be a great way to build equity in your home loan or bolster a retirement portfolio. Long-term is generally less risky and consequently less stressful than for those investors seeking a quick and fruitful turnaround.
Before investing you should get financial advice from an accountant or financial planner, and then take a long-term view and focus on the properties that are best placed to grow in value over a longer period of time. Staying on top of market trends and keeping an eye out for government regulatory and/or policy changes is imperative. That’s where I come in.