Identify key market indicators responsible for triggering rental price growth and capital appreciation of property assets.
With so much media hype surrounding our housing market and a plethora of varying ‘expert’ opinions about where you should purchase property, we’ve compiled eight signs to help you cut through all the confusion and determine which locations could represent good future investment prospects.
This list is a timely reminder that when you know what to look for, you will identify key market indicators responsible for triggering (or suppressing) price growth and more effectively target areas (and assets) that provide both strong capital growth and sustainable cash flow over the long term.
1. Average days on market and stock levels are in decline
Supply and demand are the key factors that underpin the value of residential real estate... and any market for that matter! If more people want a product but it has a finite supply that’s fast being exhausted, its value will subsequently rise.
Generally speaking, when people are snapping up housing stock in an area you’ll find there’s less to select from, and what’s available tends to go very quickly, with increasingly higher price tags.
Last May, when things reached boiling point for some of our major property markets, the combined capital city data, as reported by CoreLogic RP Data, showed that homes were taking an average 37 days to sell.
Interestingly, in Queensland, one of Brisbane’s top performing suburbs for days-on-market in May 2015 was Mansfield. Situated 11 kilometres from the CBD, the family friendly neighbourhood hadn’t really produced outstanding capital growth rates in the past, at just 2.9% on average (realestate.com.au) over the ten years to June 2015. But when the average days on market for new listings dropped to 31, a coinciding steep upward adjustment in house-price data becomes evident, with the median jumping from $552k to $595k by the end of 2015. This represents capital growth well above historical rates, at 7.8% over 7 months. You can see the graphs here.
2. Vendor discounting starts to drop
Logically, when more demand exists from willing buyers, vendors are the ones who increasingly benefit from rising property prices. When a seller can see that property in their postcode is attracting a lot of interest, they no longer feel compelled to participate in aggressive, buyer-driven negotiations.
3. An increase in auctions
Real estate agents tend to favour auction sales in particularly frothy markets, as increased buyer competition often means a lot of emotional bidding, which is exceptionally effective at pushing up prices.
4. Gentrification is occurring
Seek out neighbourhoods where older generations are beginning to downsize and make way for younger buyers moving into the area; often around inner-city enclaves where first-time buyers who want to be close to the action, but can’t afford the latest ‘on trend’ hotspot, are forced further afield to find a cheaper ‘fixer upper’.
These new residents attract private and public investment in the form of increased infrastructure and amenity, particularly things like cafes, retail outlets and restaurants, thereby making the area even more appealing.
5. Vacancy rates are falling and rental yields are rising
Landlords take note! Declining vacancy rates mean more tenants entering a market that’s already experiencing an accommodation shortage. Within the industry, a 3% vacancy rate represents a fairly well-balanced market.
Anything below this indicates supply constraints that often mean rising rental yields and in turn prices, as more investors start to take an interest in the neighbourhood.
6. More online interest
Sites like realestate.com.au will tell you how much interest a suburb is generating based on its online residential property profile. When more people start to seek out a particular area that has demonstrably fewer listings, this could be an indicator of rising demand and values.
7. Increased public and private investment
As mentioned above, when a location attracts increased attention from younger buyers, logic dictates that increased commercial enterprise will soon follow.
Larger populations mean more potential consumers of goods and services, particularly in emerging suburbs where new housing construction is occurring en masse…all those new homes require new white goods and furnishings after all.
Look out for locations where large retail, leisure, health and education infrastructure is being constructed.
8. Industry diversification
With population growth and the subsequent increase that occurs across the commercial property sector in an emerging suburb, it stands to reason that industry becomes more diversified and new employment opportunities are created. In turn, this continues to attract even more people to the area as they relocate to find work.
Understanding these types of indicators can be extremely advantageous for property investors seeking more affordable housing options in up-and-coming markets. Staying one step ahead of the game will keep your cash flowing and your capital gains going strong.