There are many things to consider when assessing the potential of an investment property, including where to buy. The media may report on the ‘Australian Property Market’ as a single entity, however, Australia consists of thousands of property markets, doing different things, at different times. There are various national economic factors such as consumer confidence, interest rates, unemployment and wage growth that influence the markets at large, however, there are many other drivers such as supply levels and affordability that can make an individual market move in its own cycle.
Sound Property has developed an innovative research model that involves a ‘top-down’ approach across three tiers of research. The 15 Key Investment Drivers identify the best markets and property for growth and rental yield, and help reduce risk. Rather than starting with a property and trying to justify it as a good investment, it is better to start at a Macro level (ie: city) then move to a Micro level (ie: suburb), and then finally assessing the Property level. For example, if you are buying in a suburb with high vacancy rates, or a city with rising unemployment, then the performance of the investment can be severely impacted, regardless of the actual property and its features.
Below is a basic explanation of each driver.
Macro Drivers:
Market Cycle
In Australia, there are literally thousands of different property markets that have historically performed in 7-10 year cycles of boom and bust, or expansion and contraction. As the market expands and prices rise, new supply is constructed to a point where the market becomes saturated and starts to contract and the process repeats.
How does this impact property?
To accelerate results in property investment, it is best to get into a market at the bottom of its cycle. When supply levels are low and demand is triggered by factors such as low interest rates, affordable housing or increasing confidence in the market. This is the philosophy of counter-cyclical investing, or ‘showing greed when others show fear and fear when other show greed’ as Warren Buffett would say.
Where to find more infomation?
It is important when looking at market cycles to use a large window of time, such as 10 years plus, not a week, month or year as some media reports on. This data can be found for each suburb around the country on licensed websites such as pricefinder.com.au
Although market cycles are a key investment driver in the property market, they should never be looked at in isolation. Research of other drivers may reveal vital facts and trends that need to be taken into consideration for a sound investment. Stay tuned as we highlight other important drivers, and how to research them.
On an international scale, Australia’s average unemployment is actually relatively low, currently sitting around 5%. Unemployment rates can be more volatile and concerning in markets that rely on a small base of industry and commerce, such as mining towns or lower socio-economic areas.
How does this impact property?
If the unemployment rate is high the local population may not have sufficient income to pay rent or support price growth in an area. This can obviously negatively impact the performance of an investment property.
Where to find more infomation?
The ABS release employment data after every census and information can be found on their website www.abs.gov.au. Another great website is profile.id.com.au
Although unemployment is a key investment driver in the property market, it should never be looked at in isolation. Research of other drivers may reveal vital facts and trends that need to be taken into consideration for a sound investment. Stay tuned as we highlight other important drivers, and how to research them.
The basic economic principle of supply and demand is a fundamental property market as a driver of growth and rental yields. Excess demand and lack of supply will result in lower vacancies and upward movement in prices and rental yields. Excess supply will do the opposite. Demand can be triggered by such factors as low interest rates, wage growth, employment and infrastructure spending.
How does this impact property?
It is important to look at future supply levels and how they may impact the market. Be especially cautious in areas with higher density housing and less height restrictions as these areas can be more volatile and become oversupplied quickly. Similarly, ‘greenfield’ estates on the edge of the suburban sprawl where there is no scarcity of land can be developed faster than the actual demand.
Where to find more infomation?
Local council – New approvals for supply
sqmresearch.com.au -Stock on Market, Vacancy Rates
Although Supply and Demand is a key investment driver in the property market, it should never be looked at in isolation. Research of other drivers may reveal vital facts and trends that need to be taken into consideration for a sound investment. Stay tuned as we highlight other important drivers, and how to research them.
An increasing population is reflected in a positive growth rate for an defined area. This influx of people may be coming from interstate migration or external immigration. Traditionally the national growth rate is around 1-2% p.a. Fast growing areas may have 3%+ p.a.
How does this impact property?
Population growth puts pressure on the demand side of the property equation. It may also signify the health of the local economy, job market, affordability and desirability.
Where to find more infomation?
Population data can be found in a variety of places such as the ABS or a great website, profile.id.com.au.
Although population growth is a key investment driver in the property market, it should never be looked at in isolation. Research of other drivers may reveal vital facts and trends that need to be taken into consideration for a sound investment. Stay tuned as we highlight other important drivers, and how to research them.
The health and growth of an economy can be measured by Gross Domestic Product (GDP) or Gross State Product (GSP). These are basically the market value of goods and services produced by a country or state, and their trends over time.
How does this impact property?
Economic vibrancy is one of the main determinants of standard of living and societal welfare. If an area has a healthy economy and increasing output this can creates more jobs and wealth which has a positive impact on property market and demand.
Where to find more information?
CommSec produce a great monthly report called the ‘State of the States’ which has a diverse range of economic data from a variety of sources and is just one useful insight into the economic ranking of each State and Territory.
Although economic strength is a key investment driver in the property market, it should never be looked at in isolation. Research of other drivers may reveal vital facts and trends that need to be taken into consideration for a sound investment. Stay tuned as we highlight other important drivers, and how to research them.
Infrastructure projects such as roads, rail, schools, hospitals and shops.. and even casinos are an important driver in the property market. They can be initiated and undertaken by private and public companies, councils and governments.
How does this impact property?
These new projects can create and support urban renewal and gentrification, attracting new generations of people to an area. They also create employment opportunities which are vital to the local economy. This influx of population can place pressure on the demand of housing, resulting in positive appreciation of prices and increased rents.
Where to find more infomation?
Local council or government websites. Local newspapers and print.
Although Infrastructure is a key investment driver in the property market, it should never be looked at in isolation. Research of other drivers may reveal vital facts and trends that need to be taken into consideration for a sound investment. Stay tuned as we highlight other important drivers, and how to research them.
Vacancy rates are an extremely useful measurement of the relationship between the supply and demand of an area. The vacancy rate is basically the available rental properties on the market at any one time divided by the total rental stock in the area.
How does this impact property? When vacancy rates are low it usually means supply is being outstripped by demand. This puts upwards pressure on rents and prices then tend to follow. Generally, a market is considered balanced at 3% and anything less is an undersupply. A vacancy rate of 3% an investor could expect around 1-2 weeks vacancy a year.
Although Vacancy Rates are a key investment driver in the property market, it should never be looked at in isolation. Research of other drivers may reveal vital facts and trends that need to be taken into consideration for a sound investment. Stay tuned as we highlight other important drivers, and how to research them.
Affordability is the relationship between average household incomes and average mortgage repayments, or more specifically what percentage of income is being spent on mortgage repayments.
How does this impact property?
The more people pay out their income towards a mortgage, the less ability they have to keep pushing prices upwards. Ideally, below 30% of household income going towards mortgages represents a comfortable market with room for growth.
Where to find more information?
Data can be drawn from the ABS Census to determine this debt ratio in each market and suburb.
Although affordability is a key investment driver in the property market, it should never be looked at in isolation. Research of other drivers may reveal vital facts and trends that need to be taken into consideration for a sound investment. Stay tuned as we highlight other important drivers, and how to research them.
Demographics include average incomes, average age, transport to work, household structure, crime rates and employment.
How does this impact property?
It is useful to understand demographics such as the type of household structure and socio status to invest in the right type of dwelling for the area. For example, it would not be advisable to buy a one-bedroom unit in an outer suburb known for families that desire houses. It will lack demand and subsequent growth. Always look for features that will attract local owner occupiers as this is the group pushing future values up.
Where to find more infomation?
Demographic data can be found in a variety of places such as the ABS or a great website, profile.id.com.au.
Although demographics is a key investment driver in the property market, it should never be looked at in isolation. Research of other drivers may reveal vital facts and trends that need to be taken into consideration for a sound investment. Stay tuned as we highlight other important drivers, and how to research them.
Sales data includes statistics such as auction clearance rates, stock on market, days on market and online listing views. It show the amount and the frequency of transactions in a market.
How does this impact property?
Sales data can be used to determine the health of a market. For instance, if the ‘days on market’ are long it may suggest a sluggish market with low demand. This impacts the sale prices achieved and in turn the price growth of the market.
Where to find more infomation?
Sales data can be found on websites such as realestate.com.au and sqmresearch.com.au
Although sales data is a key investment driver in the property market, it should never be looked at in isolation. Research of other drivers may reveal vital facts and trends that need to be taken into consideration for a sound investment. Stay tuned as we highlight other important drivers, and how to research them.
The build quality, condition and age are important considerations when investing.
How does this impact property?
Although no building is 100% free of defects it is important to put them into perspective and gauge if any upkeep or ongoing maintenance is required. Conducting a pre-purchase building and pest inspection is a vital part of the due diligence process.
Where to find more infomation?
A licensed building inspector should summarise the occurrence and condition of defects in a report for you to make an informed decision and minimise unexpected future expenses.
Although build quality is a key investment driver in the property market, it should never be looked at in isolation. Research of other drivers may reveal vital facts and trends that need to be taken into consideration for a sound investment. Stay tuned as we highlight other important drivers, and how to research them.
There is a saying in real estate that you make your money when you buy, or paying the right price is crucial to the success of the investment. The other piece of the puzzle is achieving a steady rental income that fits your budget.
How does this impact property?
Paying too much for a property can take years to recoup. However, offering too little could mean you miss out on a great investment all together. Buying a property that has a low yield can quickly become a burden to hold and may result in a forced sale if interest rates rise.
Where to find more infomation?
Find sales and rental evidence to support the purchase price and predicted rental yield. These comparables should come from within the last 6 months, be within a 1km radius, and be a fair comparison in terms of size, features and inclusions.
Although price and rental yields are a key investment driver in the property market, they should never be looked at in isolation. Research of other drivers may reveal vital facts and trends that need to be taken into consideration for a sound investment. Stay tuned as we highlight other important drivers, and how to research them.
Size relates to various measurements such as land size, house size, bedroom size, living size and general useable space.
How does this impact property?
It must match the demographic for the area, for example, a family needing space vs a young professional couple that are happy to live in smaller quarters.
Where to find more infomation?
Floorplans, council records and planning websites
Although size is a key investment driver in the property market, it should never be looked at in isolation. Research of other drivers may reveal vital facts and trends that need to be taken into consideration for a sound investment. Stay tuned as we highlight other important drivers, and how to research them.
Property features such as views, design, architecture, extra car spaces, large outdoor areas, air-conditioning and north facing are all bonuses when it comes to finding standout investment properties.
How does this impact property?
For property to achieve high demand when being sold it needs to be attractive to the local demographic. Therefore when purchasing look for features and owner occupier is going to be interested in. Avoid investor-only areas with cookie cutter designs and poor quality finishes as these won’t stand the test of time or produce the best returns.
Where to find more infomation?
Speak with local agents to ascertain what is popular and in demand in the area. sqmresearch.com.au will also show the ratio of investors vs owner occupiers in a suburb.
Although property features are a key investment driver in the property market, they should never be looked at in isolation. Research of other drivers may reveal vital facts and trends that need to be taken into consideration for a sound investment. Stay tuned as we highlight other important drivers, and how to research them.
Location, Location, Location is the old adage that well placed real estate will be in demand and ensure future growth.
How does this impact property?
It is vitally important to have basic amenities nearby, such as shops, schools, transport and hospitals. Popular school catchment areas can also positively affect prices, as families try to secure the best education for their children. Unfavorable locations, such as flood zones and busy roads, should be avoided as they can impact the potential resale of the investment.
Where to find more infomation?
Walkscore, Google Maps, Suburb Scores and local School catchments can all provide valuable infomation on the location of a property.
Although location is a key investment driver in the property market, it should never be looked at in isolation. Research of other drivers may reveal vital facts and trends that need to be taken into consideration for a sound investment. Stay tuned as we highlight other important drivers, and how to research them.
Many research reports or market commentary often only look at 1 or 2 drivers in isolation, such as rental yields or capital growth, which doesn’t give the complete picture of the market. It may hide other vital facts and trends that need to be taken into consideration for a sound investment.
Sound Property’s Free Suburb Profile Reports provide the key facts on any suburb in Australia, from a variety of trusted sources, to identify the best markets for growth and rental yields and help avoid costly mistakes.
Sort the fact from fiction with a FREE Suburb Profile Report to see how the 15 Key Investment Drivers look in your suburbs of interest!
This article is provided for general information only and does not constitute personal advice, as it does not take into consideration your personal circumstances. Please consult a licensed tax or financial advisor before making any decision to invest.
