10 Jul The ‘halo effect’ and its impact on buying decisions – Peter Gionoli
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’. 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. Peter Gionoli from Investor Assist explains the financial implications of the wrong halo effect.
Kevin: Peter Gianoli is the General Manager for Investor Assist and is a property marketing and investment expert, and he’s talking to me this time about the halo effect.
Peter, thank you for your time.
Peter: It’s a pleasure, Kevin. Nice talking to you.
Kevin: Firstly, tell me, what is the halo effect?
Peter: Well, I suppose the halo effect has two parts. Number one, it’s probably better known where if you have a look at a property hot spot, where people are constantly looking for property hot spots, the halo effect is the impact of that particular hot spot in and around suburbs around it. So you get a glowing effect of the halo not only from the hotspot but in suburbs around it, and as a property investor, there are opportunities there that are presented.
The other aspect of the halo effect is we all have preconceived ideas. It’s a typical marketing scenario, where each of us have already made up our mind often because of conditioning. So you already have a preconceived idea that the best football team Australia is Collingwood as opposed to, say, the West Coast Eagles, so therefore everything you see regarding Collingwood, you take on a positive message, or it could also be no different to if you’d bought yourself a red car, then you go outside and all of a sudden you notice red cars all the time.
Kevin: Yes, it’s awareness.
Peter: If you have a preconceived idea to something, that can have an impact on how you make an investment.
Kevin: Well, let’s relate this to property, then. What are some of the biases or familiarities or beliefs that we have that sway us in property?
Peter: It could be house versus apartment. Certainly in Western Australia, apartments are new. The only people who lived in apartments – or flats, as they were – in the 1960s, ’70s and ’80s were people living in housing authority blocks of flats, so there is a bit of a stigma around with the empty-nester in Western Australia as an example with houses versus apartments. You’ll hear “Don’t touch an apartment, you have to have a house.” That could be true; it might not be true.
Kevin: Might not be true, yes.
Peter: New versus established. Do you want new, do you want established? Well, it could be as gruff as “Oh bloody hell, you can’t trust builders, so you have to buy established.”
In Perth, it’s north of the river, south of the river. I know it’s eastern suburbs, western suburbs in certain localities.
Kevin: North and south, yes.
Peter: Positively geared, negatively geared.
Kevin: That’s a good one, positively geared or negatively geared.
Peter: Yes, some people have heard somewhere along the line that it really doesn’t matter whether they charge you for a guaranteed rental return and put it onto the price, but it’s positively geared or negatively geared, it’s going to cost you a bucketload, but I’ve heard negative gearing is a good thing, who knows.
Or public or private education, furnished or unfurnished housing. Are we next to private schools, are we next to public schools? Should we buy something that’s already furnished or unfurnished? These are some preconceived ideas.
Kevin: What about some of the common phrases in real estate, like “Location, location, location,” or even “Buy the worst house in the best street”? Do these fall into that category?
Peter: Yes, most definitely. I think “Buy the worst house in the best street” is probably one of the biggest ones, because if it’s already the best street, the value is probably already at its max and you’re actually paying too much for the worst house in the best street.
Kevin: Yes, that’s true.
Peter: Particularly if you compare it to, say, the best house in a lousy street. You might have paid far too much, so that’s one in particular that goes. And of course, “Location, location, location” at the wrong time could be a lousy investment.
Kevin: I suppose there are many others, too, even locations close to the CBD or even easy access to the CBD.
Kevin: These are all preconceived notions, aren’t they?
Peter: Yes, absolutely. I’ve seen properties that are very close to the CBD could be termed good location in that regard but are actually on a busy freeway or a busy road, next door to a petrol station.
Kevin: I imagine this halo effect could be used to great advantage by spruikers.
Peter: Yes, and that’s what we see. That’s the sad outcome. If you already know what people have preconceived ideas to – and it’s not difficult if you have a room full of middle aged empty-nesters, and particularly if you know your market – then there’s a chance if you’re in Western Australia that if you pushed housing, new, with a very reputable builder, north of the river, that’s going to get you your tax back, and maximum depreciation, they’ll all rush to it and say yes, even though they haven’t done any research on the market, the area, the suburb, and the type of dwelling.
Kevin: It’s an interesting subject; it’s one that we should be very aware of. Peter, it’s been great talking to you, thank you. Peter Gianoli is the General Manager of Investor Assist, and you help guide people through this maze quite often. I imagine this is a question that’s asked of you as well on many occasions, Peter.
Peter: Obviously, the question on everyone’s lips is “What should I buy?” because no one wants to look foolish. It’s good if they ask the question, because then you can take them through what all the fundamentals are with property investment, but if they’ve already fallen in love with something, they generally convince themselves that it’s a good idea, and then they’re looking for just those buying cues that reinforce their decision.
Kevin: Peter, great talking to you. Thank you very much for your time.
Peter: A pleasure, Kevin.