LOCATION … Location … Location: Why up to two-thirds of Property Investors may be getting it wrong …+

AND it seems nobody dares to talk about …

-foreign buyers
-onshore PROXY buyers
-money laundering

THE list goes on …

WHY is this so?

-could it be they are readily intimidated by an expectant avalanche of abuse that will quickly label them as ‘RACISTS’ if they even mention the facts about foreign ownership of Australian domestic housing

-could it be various media outlets are also wary of mentioning the truth because of the possibility of backlash that could hurt their bottom line

-could it be they are worried about the BIG END OF TOWN and their well connected political allies taking them apart

HOW about it’s all about the above and more!

MEANWHILE … a Whole Cohort of AUSTRALIANS are locked out of HOME OWNERSHIP … with little else to look forward to other than Life-Long Tenancy … and insecurity … for a large slice of the pay packet … in THEIR OWN COUNTRY! How good is that?

Location, location, location: why up to two-thirds of property investors may be getting it wrong

The Conversation By Maria Yanotti and Danika Wright

15 OCTOBER 2019

For sale sign outside an apartment building along a street in Brisbane on October 31, 2018.

PHOTO: What matters most to buyers, along with price and value, is location. (ABC News: Liz Pickering)

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The housing market is moving again. In the past month, national prices have climbed 0.9 per cent.

What matters most to buyers (and especially to investors), along with price and value, is location.

The cliché suggests that in the long run that’s all that matters.

So it would be unfortunate if investors were getting it wrong.

Our examination of proprietary data from a major bank covering 1.15 million residential mortgage applications over the six years between 2003 and 2009 suggests they might be.

Published this month in the Pacific-Basin Finance Journal under the title Home advantage: the preference for local residential real estate investment, it finds that more than two in every three Australians buying an investment property pick one close to where they live.

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A new crackdown on retail lending has seen banks throwing greater scrutiny on location and living expenses when assessing loans.

This means that someone who lives in Manly is far more likely to invest in Manly over anywhere else in Sydney or in Australia and so on.

There are several good reasons for this.

First, the time, effort and travel costs are typically lower when investing in your local area than investing further away.

Second, property investors sometimes plan to self-manage without an agent, making proximity an advantage.

The Real Estate Institute of Australia believes one in five investors self-manage.

And property investors might believe that they have a “home advantage” in knowing their location better than non-locals.

Home bias means eggs in one basket

Home bias is well-documented in other markets.

For example, investors in the stock market are more likely to hold shares in Australian rather than international companies.Australia’s house of cards
Australia’s housing downturn appears to be over … for now. But huge household debts leave the nation vulnerable to a shock.

This is even the case for superannuation funds, who set aside a sizeable portion of their assets for investment in Australian stocks — far more than the Australian stock market would represent in a global stock portfolio.

It brings with it problems alongside the advantages of convenience and local knowledge.

Most investors hold only one investment property alongside their place of residence, making it one of the few chances they have to diversify away from the risk embodied in that suburb.

Instead, most double down on that investment.

If you are wondering whether this is unwise, or unwise enough to outweigh the advantages of local knowledge, consider this question: How likely is it that the location you happen to live in will always outperform every other location?

Interestingly we find that “sophisticated” investors are more likely to invest outside of the suburb where they live than less sophisticated investors.

Investing non-locally is more likely among investors who own shares, already receive rental income, and work as professionals or in management positions.

And a more fragile financial system

The risks that doubling down on locations impose on unsophisticated investors extend to the financial system itself.

Higher geographical concentration of property investments increase the risk of defaults and foreclosures in a market downturn, amplifying economic cycles.

*Australians have a lot of wealth tied up in property, and the property market in turn is highly connected to the financial system through bank lending.

Cascading rooftops in a brand new housing development

PHOTO: Higher geographical concentration of property investments increase the risk of defaults in a market downturn. (ABC News: Gian De Poloni)

Our study suggests there is an opportunity to strengthen Australia’s financial system by educating potential investors about risk.

It could make them, and the Australian economy, better able to withstand downturns.

Maria Yanotti is a lecturer of economics and finance at the University of Tasmania’s School of Business and Economics. She receives funding from the Australian Housing and Urban Research Institute. Danika Wright is a lecturer in finance at the University of Sydney. This article originally appeared on The Conversation.

SOURCE: https://www.abc.net.au/news/2019-10-15/up-to-two-thirds-property-investors-getting-location-wrong/11601090

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