Generalisation, over-reaction and short-sightedness hits the Melbourne property market

Generalisation, over-reaction and short-sightedness hits the Melbourne property market
Generalisations, over-reactions and a short-sighted approach have led to houses in Melbourne being perceived as far riskier than they actually are.  
 
While the risk associated with residential property has recently increased – as the major markets of Sydney and Melbourne have cooled – the Melbourne property market is being looked at unfavourably. And this is having a dramatic impact on ‘mum & dad investors’ as well as policy makers.
 
However, RiskWise Property Review’s Residential Property Risks & Opportunities Report has concluded that, overall houses in Melbourne carry a low-medium level of risk and are projected in the long term, to deliver a healthy capital growth.
 
The report is based on the analysis of 30 variables grouped into seven categories to assess the short and long-term risk for houses and units in each state in Australia.
 
Melbourne attracted the highest population growth across all states and territories, largely due to significant interstate migration. While the market has cooled, and units carry a relatively high level of risk, houses, particularly in affordable areas, such as the western suburbs, carry a lower level of risk and are still enjoying a healthy capital growth.
 
However, according to RiskWise CEO Doron Peleg, the perception of the market appears to be one of negativity due to “generalisations, overreactions and a short-sighted approach”.
 
“The first reason is generalisations, such as from ‘Boom to Bust’. Most experts tip property price weakness in 2018, without acknowledging the fact there are many property markets,” Mr Peleg said.
 
“Another common generalisation is the terms ‘dwelling’ or ‘housing’ without distinguishing between houses and units, ignoring the facts that these property types are so different that RiskWise had to create separate heat maps for each property type.
 
“The second reason for the perception issue is over-reaction, including comments such as “5 to 10 per cent price falls in 2018.”
 
“Some forecasters are ignoring that around 78 per cent of the houses in Melbourne are owner-occupied. Further, home owners in Melbourne have an estimated median net equity of $467,000.
 
“It is far more likely that with such equity they will get finance for an investment property, rather than being forced sellers. Therefore, the likelihood that houses in Melbourne will experience a significant correction is low.”
 
Mr Peleg said many property investors were looking to “exotic investment opportunities”, such as North Queensland and Perth that, based on the RiskWise report, carried a high level of risk and were projected to deliver a lower level of return.
 
“Others have a short-sighted approach focusing on quarterly, and in one case even weekly, data, applying principles that are common in the share market of short-term transactions,” he said.
 
“That approach ignores the fact that a typical house in Melbourne is held for 11.9 years.”