How Do You Find the Next Property Investment Hot Spot?
The science of property investing
The Recent Real Estate Landscape
If the residential property market in Australia has been heated in recent times, then Sydney has been a wild, all-consuming bush fire, reaching new and unheard of temperatures.
CoreLogic RP Data Head of Research Tim Lawless asserts that in the 12 months to July 2015, capital gains in Sydney increased more than 18.4 per cent - the largest annual rate of growth for Sydney in more than 13 years.
Now just sit back and think. Imagine if you had bought a property in Sydney before the boom? Let's say you bought a house for $600,000 in June 2014. Just one year later you'd be lounging by the pool, martini in one hand and around $110,000 of capital gains in the other.
Proving that spring is widely considered to be the selling season, September 2015 saw an influx of new listings on the market, according to CoreLogic RP Data. The increase of supply resulted in home values in Sydney effectively flat-lining for the month, posting growth of just 0.1 per cent. Meanwhile, auction clearance rates have fallen to a low 70 per cent range.
"Vendors are still enjoying strong selling conditions, but it looks like buyers are slowly regaining some leverage in what has been a very hot market," said Mr Lawless.
So, given that the heat appears to be dissipating (somewhat), how do you find the next property hot spot?
Hit the Books
Property investment is not a game like wheel of fortune where you place your bets on a spin and hope for the best. To gain a proper understanding, it takes extensive research into the various markets within markets.
The Australian Securities and Investments Commission (ASIC) recommends looking into various statistics like:
- The median price: Not just the current figure, but also how it has fared over the previous 12 months. Also, how does it compare to surrounding suburbs? An area that is significantly cheaper than its neighbours can indicate imminent growth.
- Recent sales: Studying the most recent transactions will give you the most up-to-date information on prices in the area.
- Vacancy rates: High vacancy rates can indicate a less desirable area, which could make it harder to find tenants and to sell in the future
- Future changes: If there are any scheduled or proposed developments in the area, you need to know about them. A new school or refurbished amenities could be beneficial to the area's value, for instance, while rezoning or commercial construction could be harmful.
- Expert opinions: There are a number of professionals that offer tips on up-and-coming suburbs via blogs and market reports. Just be wary of any potential biases they might have.
Hit the Pavement
While this can all be achieved from the comfort of your computer chair, ASIC discourages investing in a market that you're unfamiliar with.
Therefore, you should wear out some of your shoe leather and view the suburb in person. By walking through the area and attending a few open homes, you will be able to get an idea of the people that live there and what the properties are like.
Furthermore, you will be able to determine the proximity to nearby amenities.
For example, figures from Roy Morgan Research have divulged that the number of households in Australia without a car is on the rise. In March 2011 the number of young couple households who didn't have a car was 6.4 per cent - in just four years this has surged to 11.3 per cent. This highlights the importance of having easy access to public transport.
It is equally important to consider suburbs that are within the zones of high-performing schools. The 2011 Census revealed that more than 71 per cent of households are families, which means it would make sense to make a property investment in an area that will appeal to the vast majority of Australians!