If you research on property investment, the amount of data and the lingo can evoke a lot of “oohs” and “aahs.” So, in order to help you in researching the market accurately and effectively, we have this guide on how to research the various investment suburbs.
What you should consider?
Everyone has their own investment requirements depending on a lot of factors. One has a checklist that’s not quite the same with another.
What should you consider in evaluating the area’s market profile according to your needs – read on:
Supply and Demand Data
Are you familiar with the basic economic principle of supply and demand? If you’re studying a number of investment areas – these two factors are critical. If you’re looking on a suburb level – check its supply and demand. It is a property market driver of price growth. Ask these questions:
- Will many people go & live in this area?
- What new developments will get off the ground?
Things can happen though in a matter of time, notwithstanding the dominant low vacancy rates. You can see suburbs in Brisbane, Melbourne and Sydney with a surge of new, off-the-plan projects that will saturate the market leading to some challenges along the way.
One factor worth checking is the population growth which will have an impact on demand, construction stats as well as future developments. All these will in turn affect supply. Study also the region’s demographic data, say suburbs, where residents usually have above average and swelling disposable income.
Check that there is not much of supply in the location. For instance, in the middle-ring suburbs of Melbourne – there’s just too much supply despite the presence of accurate demographics. There is a flourishing housing situation with the emergence of some high-rise as well as off-the-plan developments. This implies that there will be no capital growth although there’s an escalation in people’s wages.
A Study of Economic Factors is what you need to do
Study a number of economic factors such as employment trends and disposable income when you do your research on the different suburbs.
Consumer Confidence, Employment Growth and Finance-related Trends
Explore the areas where people are ready and able to pay much for a home. What causes the rise in the property prices is its affordability. The thought that it’s cheap is giving you the wrong notion. What it suggests is that people have the means to be able to stay and dwell in that area. The best places to look for are locations where there will be more employment opportunities and growth. This implies that there will be growth in wages, too. Another thing to look into is consumer confidence. Most will not even think of making decisions for big-time purchases once they are in doubt of their job security and their future. It is best to check recent movements in finance pre-approvals too. This will give you an indication in assessing the number of investors in the area you’re interested in moving forward.
Median property prices and capital growth
The median property prices for an area is a factor to consider when you want to know if the offer you’re taking for a property is practical. This can definitely give you an edge in negotiation and more so, avoid overpayment on your part.
One approach is to acquire properties that are going to outdo the capital growth averages. This subject is pretty much related with the historical capital growth; thus, it is vital to check past data. Conversely, look at areas with future capital growth influenced with demographics. Australian Census’ policy is to measure demographic information every five years for every postcode. Doing this will provide you valuable and telling takeaways, such as what areas have the higher growth in wages, which convert to higher disposable income that eventually is driving up the demand.
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In so far as the negotiations for the right price of the property – it is essential for you to weigh the pros and cons of each property. Check if there are comparative analysis reports available online. Go through all the figures but this task is a bit daunting. To have a more factual comparison, it is proven that the best answers will come from the “go-to-the-area” visits by driving and walking around, checking out the properties in detail. Get a feel of the surroundings, the people around, and more as you complete these open real-time assessments.
Market Cycle
One helpful consideration you should take up in your research is the market cycle of the area, in this case, the suburb. Try to avoid timing the market as you don’t need to purchase towards the growth cycle’s highest point. There will be expected intervals until prices move up again. Ideally, you would like to complete the purchase at the initial upturn stage, but timing is not essential. As it is really more on evaluating your personal circumstances and your preparedness to invest.
What you should remember is this: The best investors perform excellently in both markets: the good and bad, while the worst investors fail miserably in both markets, too. Unfortunately, even worst in the bad markets.
Heard of gentrification? This is a guaranteed improvement in the property prices down the road. See how suburbs undergo gentrification. It means there are new residents moving in an area that has been past its glorious state but still attracting new people to stay. This means there’s improvement in housing and potential new businesses are also invited to come in. One good example is Marrickville in the inner west of Sydney. It was once quite appalling until favourable changes have taken place.
Demographic Data
Profiles based on demographics of a location will help you gauge the kind of people living inside the suburb, like their age, gender, their behaviour in buying or renting whichever they prefer, and their disposable income.
Disposable Income
It is good to check the average disposable income of residents in the suburb. The reason is that you can analyse if their income levels will result to progress or development, such as new business centres or other top-notch amenities or government-sponsored projects like infrastructure. These establishments will most probably perk up property values. Explore the locations in which people are keen on paying luxurious rates for quality living. Another thing to consider is whether one’s yearly disposable income is increasing over the national average figure. This forms a significant part in your evaluation.
Resident Needs
For demographics – your first thought should be what types of people would opt to live in the area. For instance, the one-bedroom unit is ideal for some suburbs, especially those near basic structures like banks, universities and hospitals. Sadly, this might not work out with other suburbs. Where do people prefer to stay and live? You need to offer the most suitable spaces for the kind of people who need them, right?
If for example, one suburb’s demographics is the senior citizens, then, buying a unit without a lift or perhaps, a mobility access facility is not a wise move. What are the essentials people need for their dwelling?
Location and Availability of Amenities
For a location to be appealing – there should be facilities and amenities nearby, such as schools, hospitals, parks, transport hubs and recreational centres. There are a few things you need to do. Look for the districts in the suburbs. Usually, suburbs have 2 or 3 districts – each one different from the other by almost 20%. This is true even if they share a single postcode. Some valid reasons could be: one has a view or it is on the main thoroughfare, and the like. It’s up to you to take time to really go around the area and observe – as these are data you do not see or read online.
Understanding Property Data Information on Economy
How do you figure out the law of supply and demand?
The law of supply and demand rings true for property investment. It is recommended that you find suburbs where demand is over supply. But you should not believe numbers at their face value. Think that these figures/stats can also be inaccurate and doubtful if you are just reading them as they are. You need to place the data you have into the right context so you can analyse it better.
As an example, you might perceive an area’s vacancy rate of 10% – but you observe that it can drop to 3% the next month, and so on. Study the reasons for the change in rate and if this is important at all for you. One reason could be that there are few people living in the area, thus, take into account how comparative this is in regard with the other criteria you’re checking out.
Property Market Data – what should you consider?
Note that the data and figures you evaluate will be based on what your investment objective is. Are you much more involved with looking for a market with a definite capital growth? Perhaps, another investor can choose to go for the rental yields as their dominant figure. These are the market trends you should consider:
- Days on Market (DOM)
- Vacancy rate
- Rental Yield
- Total Number of For Sale Listings
- Online Listing Market Demand
- Number of Approved Development Applications
- Median Number of People Looking for a Room
- Median Number of Rooms Advertised Online
Let’s have an illustration: Wallsend, NSW 2287 is a market with a very good growth potential. Below is the monthly performance data over the past 12 months:
- DOM of 40 days
- A low 1.95% vacancy rate
- 5% rental yield
- High online listing market demand
- Median number of people looking for a room to rent is 75
- Median number of advertised rooms for rent is 13
- Total for sale listings average is 35
- Total for rent listings average is 19
By evaluating a wide range of factors– it is easier to make a sound decision in the area you’re interested in.
What to gauge in a strong market demand?
These are the factors which indicate that demand exceeds supply in a market:
- Low DOM: Once properties available in the market are seen in a comparably shorter period of time (versus competing markets) – this may signify that properties are really selling fast and more importantly, there is a strong demand in this particular place.
- Small adjustment in the area’s asking price: If the sellers do not decrease their asking price for a sale to be made, this may imply that there’s competition and each is poised to offer competitive prices.
- BIG sales await these properties: If most of the properties that are placed in auction are being sold, this only means that there is quite a positive buyer response in this location. There’s also a high probability of a large number of interested buyers when they see properties are classified in ads with “open inspections” more than “private schedules”.
- Reduced supply of properties available: The condition when buyers are having impulsive and quick property acquisitions resulting to demand that exceeds supply.
Coordinate with local authorities
You are capable to make an informed, well-thought decision about a particular suburb if it fulfills your investment goals. Ensure you utilize the information and know-how of local agencies, experts and professionals.
Go to the local council website
It would be helpful to check the local council website for any updates on future developments in the area. You will get a feel of the property’s supply with the number of pending applications. Proceed and study the extent that these developments present to you. One example is a housing estate project development which can severely affect the supply in this location.
But there’s also the possibility that other local projects may have an effect regarding the demand on properties inside a suburb. These scenarios are good examples of demand-inducing activities within the area:
- Local Business Support like free workshops, webinars and networking events
- Facility Improvements like local libraries, playing fields, parks and leisure centres
- Transport facility improvements like bicycle lanes and wheelchair access facilities
How does government expenditure affect the area?
If you want to learn the state and federal government disbursements in an area you’re eyeing for, you can look up on sites like infrastructure NSW.
How about private expenses? Consider them, too. What about the big-scale enterprises? Are they influencing or diminishing numbers in the said area? For example, an upgrade of the town centre and new outlet openings such as a Bunnings outlet could mean that the portion that you’re looking at is growing.
Talk with the Experts
Try getting in touch with property developers, local agents, mortgage brokers, including residents to learn the important facts and figures of the place. A prudent decision is to be able to go and visit the area in person to be able to have a gut feel of the place and of course, form ties with the property experts.
Suffice it to say that a careful and detailed research will give you an edge in finding that perfect suburb which will match your investment strategy. If you fail doing the research (since it will take time), it is likely that you will be making a risk for a bad investment option. You do not want this to happen at all.
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