Distractors in a real estate market

By Michael Davoren, Managing Director, RE/MAX Australia & RE/MAX New Zealand

Housing is Australia’s single largest asset class, worth more than four times the value of Australian-listed stocks. In New Zealand, investment in houses represented around one third of all investor activity in a 12-month period.

Low interest rates, inflation rates, taxes and a stock market that is out of an individual’s control have in numerous ways reduced investment opportunity today.

Real estate is more than an asset class; it is a long-term asset wealth growth vehicle too, whether you are buying for your own shelter or providing shelter for others.

Property investment is a fairly straightforward concept to understand.

Its value is mostly determined through supply and demand; however, a whole lot of macro and micro influences affect the balance, which may swing that supply and demand one way or another. It’s a swinging pendulum in a perpetual state of movement, with property prices rising, stalling or falling, and creating what we call market cycles.

Let’s look at some of these factors that may affect property markets.

Some are generally out of our control as are the prevailing economic and social scene at any given point in time. These include population trends, new home construction, wage growth and employment, availability of finance, land supply, investment in infrastructure and government policy.

Property buyers are more familiar with localised influences on property values such as the amenities that make an area more liveable and provide employment, housing style and design, block aspect and views, and the general aesthetic appeal of an area.

Buyers, sellers and agents tend to react to factors that create uncertainty. Pending elections and election outcomes are good examples. Some market expectations are played out unnecessarily in extended holiday periods such as Christmas/New Year: for example, the perception that there are no active buyers over Christmas. Seasonal changes are also perceived to affect the market.

The needs of baby boomers or millennials can be quite different and are another factor.

Developing technologies and new innovations are changing the real estate landscape. Think virtual reality inspections, AI (artificial intelligence), robotics and drones.

Homes with features that take advantage of technological advances are popular with certain buyers as well as tenants, as are homes designed, constructed and functioning with sustainability and health in mind. People are more environmentally aware.

Different business models exist within the real estate industry and at times are given labels like ‘distractor’ or ‘disruptor’. However, where new brands enter markets, success only comes when the brand adapts to the market. A lesson for all models is not to underestimate the value that sellers and buyers want out of a real estate service and not to assume that what works in one market will work in another.

In Australia and New Zealand, buyers and sellers value having someone to walk them through a transaction as complex as a property sale. They value an agent with comprehensive market and local area knowledge, who knows the ins-and-outs of regulation, and is skilled in marketing and negotiation.

What might all this mean to the property buyer?

It’s good to understand that there’s a lot going on in the market you are buying or selling in. It is important not to be distracted by ‘cheap’ service and instead appreciate what real value an agent must deliver in order to achieve the outcome that you want.