As featured in Build.
The pandemic has created a property boom like no other we have seen before, but one leading property expert is warning people to be careful.
Dan Sofo is the founder and chief executive of Unicorn Buyer’s Agents and is an expert in the property market trends of Sydney. In his role, he helps people to find and purchase the ideal property.
“I am seeing too many people snap up property in the heat of the moment, spending a lot of money on homes without doing their due diligence just because they fear that if they don’t buy they will miss out and property values will keep soaring,” Dan says.
“What I am already seeing is a new kind of pandemic – a COVID property money pit pandemic. A lot of people are purchasing properties that are money pits and they are paying top dollar.”
Dan has some strong advice for property buyers.
“In a hot market, even bastard properties get bought up,” Dan says, explaining that his job is to look for properties for his clients. Many of those that he finds are off-market.
“I also view properties that are listed and I walk away from many because they require too much work to renovate or there are serious flaws and question marks over the property. Quite a number have hidden fundamental issues like foundation problems, electrical issues, roofing issues, and pest issues. We are talking big money to address and fix.”
Dan says he is really concerned by the number of people he sees at auctions buying up properties that are destined to be money pits. Many of these people, he says, are stretching to purchase the property, let alone deal with all the soon-to-be-realised money pit issues.
“It doesn’t matter how hot the market is, don’t buy a property without getting a thorough inspection done and a realistic quote for services to fix the issues.”
Cost of renovation
Dan explains that there have been price increases for common building materials such as timber, steel and concrete.
“The price of timber went up 50 to 100% last year. Steel prices increased by 30 to 60%, and concrete prices saw a 20 to 40% increase. And it’s not just material prices that are rising. Due to supply chain shortfalls and labour shortages, building and renovation projects are also taking longer to complete.”
Dan says it all comes down to global supply chains, saying pent-up demand is going to remain for the rest of the year so buyers would need to be aware that renovations would not happen quickly.
“Many people will be left renting somewhere while they wait for their renovations to eventually happen – if they happen at all – and the cost will skyrocket, placing further stress on them. In the case of money pits, the amount of work required is going to be more than the buyers first anticipated.”
The price of inflation
The Australian Bureau of Statistics showed a headline inflation of 3.5% in 2021. The repair and maintenance of dwellings showed a higher inflation rate of 7.6%, and it’s all due to increased demand and supply chain issues rising during the pandemic, Dan says.
“Many people think that the construction sector is ripping people off and profiteering during the pandemic. This is simply not true. In fact, if the contracts were signed before COVID came along, then it’s more than likely that the builders are being squeezed in order to fulfill the order.
“Property buyers that don’t understand these market forces are in for a rude shock.”
A bad location
“In a normal market, properties in not so ideal locations are priced accordingly,” Dan says. But in an amped-up pandemic environment, where the property market is on steroids, people spend too much on properties that are not ideal.
“If a property is in a bad location, it will always be in a bad location and when the property market cools, the location becomes a big red flashing signpost for buyers.”
Dan says a lot of people are buying properties that they would normally not consider, and they’re paying overprice for them.
“We are going to see a lot of people experience serious COVID property money pit pain in the future. They will try and spend more on the property to compensate for the bad location or poor aspect and find themselves sinking funds into a money pit.”
Dan advises people to stay calm and get back to basics: revisit the foundations of good property buying and investing and make good decisions. He adds that buyer’s agents take the emotion and frenzy out of the process and keep the person on track to end up with the right property at the end of the day.