The importance of analysing the property market
When investing in property, analysing the property market is an essential step to gain returns and grow equity. Good property market analysis can mean the difference between your property (and your investment) doubling in value in a few short years, or the property stagnating. This in turn could mean the difference between growing your portfolio and setting yourself up for financial security and a comfortable retirement, or growing only your debt and stress levels.
At Reventon, we like to identify what we call ‘high growth suburbs’. Buying a property in an area of high growth means that you are likely to see significant returns on your investment in a relatively short period of time. To identify a high growth suburbs, there are a number of important factors to consider.
Property supply and demand
This is a fundamental of any investment, particularly if you are looking at short term property investment or if you plan to rent out your property to tenants straight away. A key first step is to ensure that there is an active market in the area you are looking to buy. This means that there are people seeking property in that area – either to buy or rent depending on your plans. This might seem obvious, but simple steps such as logging how many people are at inspections, how much competition there is in the local area, and how many similar homes there are available, is extremely important to gauge interest.
At Reventon, we consider the ‘scarcity factor’ and recommend buying homes that aren’t just one apartment in a brand new 500-unit block. In this case, you run the risk of owning a property that is not unique or appealing to buyers, and if you go to rent out your home or sell it, there could be five other similar properties on the market at the same time, which can drive down price.
Suburb population, jobs, and infrastructure
One of the primary ways to identify a potential high growth suburb is to look at an influx of population, jobs and infrastructure. To identify this, you’ll need to think a little outside of the box with your research. For example, if a company is moving their headquarters to a new area, there will be more people carrying out their daily lives in the surrounding suburbs. This means that infrastructure investment such as a new train station to carry commuters, new cafes to feed workers at lunch, and even new schools to educate the workers’ families.
There are hundreds of events that could lead to a rise in population, jobs and infrastructure to an area. That’s why we constantly analyse activities across major cities in Australia to identify which areas could be set to benefit from such investments. It’s natural that with this kind of growth, property prices in these areas increase at a higher rate than in other suburbs where there are less indicators for investment.
Property market cycle
The property market cycle is a well established mechanism to predict how a city, area or suburb is likely to act in the coming years. It outlines the four stages of the property market cycle: value, growth, peak and correction. Within these four stages, prices will rise, fall, and plateau in a surprisingly predictable rhythm. It’s extremely important to be aware of the property market cycle when purchasing in a new area, particularly if that area has caught your attention because of a recent housing price boom. If you purchase a property in the area when its at its peak, the likelihood is your property will soon fall in value as the market corrects itself.
At Reventon we closely monitor activity in suburbs to forecast how property prices will act according to the cycle. If used correctly, the property market cycle can be a powerful tool – it’s not uncommon for house prices to double in value over the course of one cycle.
Local amenities and lifestyle
Amenities are one of the top draws for buyers and renters alike. If the area you are buying a property in doesn’t have basic amenities such as schools, doctors offices, and transport links then you will be limiting the potential value growth of the house. What is even more attractive are thriving local entertainment amenities such as cafes, restaurants, bars and shops, which tells future buyers or renters that they are investing in a healthy and growing area.
When looking at a property, consider its ‘Walk Score’ – for example, if it’s a family home how easy is it to walk to the local school? How far would future tenants or buyers need to walk to get to transport links? Is the property close to local attractions such as parks, cinemas or local businesses? This is all part of assessing the desirability of your property, which affects how easy it will be to rent to tenants or sell on to buyers in the future.
Property investment lending environment
How much a bank is willing to lend you to fund your property investment, and how much you can afford to borrow, is usually seen as an issue affecting only your house purchase – if you can get the funds, you’re ‘good to go’. But if you are looking to buy or sell an investment property, you should consider the current lending environment as this will affect the number of buyers potentially willing or able to purchase your property now or in the future. If the banks are crunching down their lending criteria, it may not be the right market for you to be selling your investment home, as buyers wait for more favourable conditions before taking out a home loan.
If you are interested in exploring the current property lending environment and how this may affect your property investment, Reventon has a number of advisors across our property investment, financial services and accounting teams to help guide you to a confident, informed decision.
Don’t skip property market analysis
We often tell our clients this is one of the most important aspects of property purchasing. It can be tempting to get straight to a bank or broker, find out how much you can borrow and go ahead with a purchase. Many people make the mistake of investing in an area they already live in – after all, it can be comforting to be able to drive past your investment every now and then to see how things are going. But this isn’t always the right decision in terms of maximising the equity growth for your investment. Full property market analysis is necessary to ensure that you’re purchasing in the right place, at the right time.
If you’re thinking about purchasing a property for investment, be sure to follow these steps and get expert advice with a free property consultation. Our experts have over 125 years of collective industry experience and have supported thousands of Australians to secure their financial future.