As property prices rise and rents remain fairly flat in most cities in Australia, choosing the right suburb to invest your money is becoming increasingly difficult. It’s become a gamble at times to make payment on an investment property.
Most of the risk lies in catching the market at its peak. Historically, for example, house prices closely followed the trends in the mining industry. It was easier to tell that an area was on the cusp of growth based on the mining prospects there, but even that has been stifled due to the poor assessment of the industry. It’s highly likely that by the time you hear about a hotspot, its property prices have already hit the roof. You’re either buying at the peak or near the peak or worse, at the market turn. When you do that, like a falling knife, the investment slices through your net worth.
Sighting an area that’s primed for growth in this market has gotten exclusive. If you’re dipping your toes in these waters for the first time, this is definitely a task that you shouldn’t take lightly. Your property investment career leans on your ability to spot the right property in the right location. Investing in property growth areas, if timed well, can see you amass equity quickly which in turn can be used to build a portfolio.
How do you do this? How do you find where to invest in property without relying solely on hype?
How to Identify Property Investing Growth Areas
Look at the Sales Data
As you look into an area for potential investment opportunities, it’s imperative that you seek property sales reports about the area before anything else. Property reports provide you with information, such as the median house price, capital growth rates, latest sales results, suburb demographics and much more. You can find these reports for free or at a premium on the internet or with the local newspaper and local real estate agents. You’ll be able to gauge the prevailing market conditions of a certain area with much ease if you have the reports.
You can also use data from the Australian Bureau of Statistics to get a general picture of the Australian real estate market. Its QuickStats feature enables one to peruse big sets of data, including summaries on people, families, and dwellings in an area. This allows one to compare an area’s trends with the state’s and the nation’s, giving you a good base for your decision.
Look for Areas Experiencing Gentrification
Gentrification is the revival of a dilapidated neighbourhood through renovations and investment. It happens when more affluent people move into the neighbourhood. As a result, property values usually soar.
The trick, however, is in finding these areas before their prices move up. The best way to go about this is to zero in on an affordable area in a region that you’re interested in. If its property prices have been growing for the past two or three years, it’s a good sign. Switch focus to the demographics, concentrating on the number of young residents with a decent income that have moved into the area in recent times. If that number is also substantial, then the area is on its way to an old school gentrification.
Further, if you find that the homes in the area are new or recently renovated; and new cafes and restaurants are sprouting up in every corner of the area, this should confirm your hunch.
Look for Infrastructure Development Projects
Infrastructure development is recognised as one of the strongest signals for capital growth in real estate. If you want to test this go to the nearest train station or a great school district and find out what the property prices are like in that area. Then find out what they were like before the station or schools were built.
Infrastructure is unambiguously good for real estate values. Properties located near schools, roads networks, train stations, and shopping centres and other amenities improve rent-ability and lifestyle appeal of an area. When you’re searching for a suburb to invest in, look for planned infrastructure that can impact the future property sales prices of the area. You can find this out at the local councils and government transport organisations.
Infrastructure development is recognised as one of the strongest signals for capital growth in real estate.
Local employment is one of the biggest drivers in any property market. People will always move to areas that offer the right employment opportunities. This, in turn, places pressure on the property market in those areas, leading to a hike in property prices.
Most experienced property investors seek out markets that are about to experience a boost from increase in short and long term job growth. Job growth is usually in synch with infrastructure developments, especially those that can produce sustainable employment long after their completion, such as airports, hospitals, shipping ports, learning institutions, and retail shopping centres, among others. To catch on as many sophisticated property investors do, target areas featuring these sorts of major infrastructure development.
Supply and Demand
This ties up in all the factors above. When the supply—the amount of property available to buy or rent in an area— is low, house prices are likely to rise to match the demand. If the supply is high compared to the demand, then prices will drop.
It’s of paramount importance to understand the level of supply in a given area before investing in it. You need to find out whether the current supply meets the demand or already above it. Just take a look at what’s happening in Melbourne today. Lots of high rise properties are going up within the inner city. The sentiment about the area is negative. Banks are starting to pull back for fear that the property prices will drop resulting from a decrease in demand. Indeed, oversupply is likely to affect the growth potential of the apartment market, but not for long. Given the population growth of Melbourne (about 2700 people arrive to the city every week), the impact may last for 2-5 years but eventually, it’ll die down, and the prices will rise again. For now, the demand meets the supply and despite the negativity from the media and pundits, you can still get 5-6% rental yield especially in the Melbourne CBD and the inner city.
All in all, the idea is to gauge the supply and demand of the area and its effects in the short and long term.