Scarcity is hard to value and will impact real estate pricing in 2021

FEBRUARY 19, 2021

With many forecasting double-digit price growth for Australian real estate in 2021, Angus Raine, Executive Chairman of Raine & Horne Group, warns that predicting what buyers will pay for individual properties is a far more taxing exercise.

“Many are suggesting that low-interest rates, an improving economy and government stimulus will play a role in driving up values. However, predicting the market value of a property is an inexact science, and depends squarely on what a specific purchaser will pay,” says Mr Raine.

There are various factors influencing market value and pricing, with scarcity at the top of the list.

“Whether the scarcity relates to the house or land size, the type of property, construction quality, unique view or location, making price predictions is challenging,” Mr Raine advises.

Sudden movements can shake markets

Sudden market movements – upturns or downturns – can also influence pricing, according to Mr Raine.

“For example, the rezoning from a single dwelling area to higher density can cause market values to rise or fall suddenly.

“This is not to say that market valuations are worthless. For properties where scarcity and market movements are not in play, a real estate agent is clearly in a better position to predict buyer behaviour.”

So, what is the “right price” for a property?

The right price can be determined by a range of factors including scarcity, as well as the amount of cash at the buyer’s disposal, a property’s proximity to a buyer’s extended family, and the perceptions of the suburb or town Mr Raine noted.

“On the flip side, a vendor might have an urgent desire for cash rather than seeking full price value.

“When some of these factors, including scarcity, come into play, the value put on a property by a buyer can be affected by anything from 10% to 40%.”

Mr Raine continued, “Also, it’s difficult for an agent to predict a price when there are in some instances over 50 groups inspecting a property.

“It should also be noted agents and valuers alike base their valuations on past sales data. This means they are looking through the rear-view mirror as opposed to over the bonnet future value.

“An auction is the true litmus test for determining the real value of a property.”