If you have been influenced by the ‘halo effect’, it might be time to take a step back and see how you can use it to benefit you.
If you have a background in marketing or if you have just started to dig around in the world of property investment, you may have stumbled across the term ‘halo effect’.
In a strictly marketing sense, the halo effect can be used to describe the bias a customer shows towards certain products because of a favourable experience with that product or other products made by the same manufacturer. Basically, the halo effect is driven by brand loyalty, bias or familiarity.
To show you what I mean, let’s try a little exercise from an investment perspective:
- House or apartment?
- New or established?
- Eastern suburbs or western suburbs?
- Positively geared or negatively geared?
- Furnished or unfurnished?
This halo effect can be a trap for investors because rather than choosing an investment opportunity based on research and objectivity, people can often make decisions based on bias or familiarity.
Investors may choose a house in a suburb because it is close to home or they are familiar with it, not because it will achieve the best returns. The same goes for choosing a house design or a builder. Investors often choose a house they want to live in, or build with a builder recommended by friends, not because they are the best builder for the job.
The other definition of the halo effect, specific to property investment, is the way value tends to filter from a thriving suburb into the areas surrounding it, like a halo shape. This is a scenario that can provide plenty of positive opportunities for investors. Let me explain:
One of the most popular and frequently quoted phrases in property investment is ‘location, location, location’, and that is all well and good if you can afford to buy in a great location. But just because you buy a house in a popular suburb does not mean it will provide you with the best possible return on investment.
The same goes for the phrase ‘Buy the worst house on the best street’. Why would you want to do that? You will only be paying top dollar for a house in a street that may already be maxed out in terms of price growth. Instead you should be looking for a house that is on the cusp of a growth spurt.
The popular suburbs are usually pricey for good reasons. There is no harm in looking for an investment property in an established suburb that has historically shown steady price growth, but don’t be afraid to explore suburbs you are not familiar with.
Some of the newer estates and suburbs may not look that exciting now, but if you manage to get your hands on the master plan, you may quickly recognise the area is destined for greatness. If an estate or suburb combines a few of the following features, chances are the area could experience strong price growth in the years ahead:
- Close to the CBD or easy access to the city;
- Close to shops and reputable schools;
- Close to public transport or planned major infrastructure projects;
- Carefully designed estate with strong planning principles;
- Plenty of parks, walkways and bicycle networks;
- Close to the beach, river or other attractive attributes;
- Strong community and passive surveillance;
- Developed by a reputable developer.
Don’t be afraid to see if there is potential for the value to filter into the surrounding suburbs. Often broadening your search by a 10km radius can save you upwards of $20,000 on a block of land, but it is not compromised because it is still close enough to the train station, shops, schools or the beach.
Just remember, if you are considering an investment opportunity, you want to make sure it is the property under the influence of the halo effect, not the investor. The financial implications of the wrong halo effect can be significant, so make sure your halo effect is a help, not a hindrance.
Peter Gianoli joined ABN Group in 2011 to establish Investor Assist. Peter has more than 15 years of experience in the property industry working across some of the country’s premier development projects and throughout his career has overseen the sale and settlement of properties worth in excess of $1bn. Peter is also a highly sought after public speaker and has educated audiences throughout Australia and around the world on topics including property marketing and investment.