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Price and Location vs Valuation

There is a common perception in the market that the “inner city” areas are more stable and provide better returns for property investors.

The old adage that any property within 10 k’s from the CBD will show the strongest growth has been around for a long time.

Lately though, it seems to me that this no longer holds true.

I was reminded of it the other day when I was discussing a low valuation with a client.

They were worried about a buying House and Land package in an outer suburb because they had heard about low valuation issues. Even though there were considerable taxation advantages for them from this type of property they decided to buy within the 10klm circle confident that the historical values would prevail.

Imagine their surprise when the Valuation came back low.

This is not an isolated case either. I have seen other valuations come in low for similar placed properties. Here are a few examples.

Suburb

Property Type

Purchase Price Valuation 1 Valuation 2
St Kilda OTP apartment 2Br $785,000 $710,000 $680,000
Prahran OTP apartment 1Br $385,000 $340,000 $300,000
Doncaster OTP apartment 2 Br $685,000 $620,000

 

 

The valuations are quite low as you can see and unfortunately, Off the Plan (OTP) purchases with long lead in times can have this issue if the market moves as a result of an oversupply.

Let’s be clear though. I’m not saying these people have bought poor properties or paid too much. There are many reasons why valuers do not value property at the Contract price and sometimes it’s justified and sometimes it isn’t. My point is that these low valuation issues happen everywhere. They are not a pointer to a bad investment or an indication that the area is not worthy of investment.

Low valuations are possible these days no matter where you buy.

A valuation is an opinion of one valuer, that’s all. The only true test of a property’s value is to sell on the open market because the price someone is prepared to pay is the true value.

Clearly though, for an investor, the long term is what counts, not the opinion of the valuer.

Investor Tip! 2016 shapes up as a challenging year for Australian investors, with recent government regulations making it increasingly difficult to attain investment property finance. Download our free whitepaper “The Interest Rate Illusion: Why Smart Investors & Interest Rates don’t mix” to find out what this mean for you.

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