FUNDAMENTALS IN THE FACE OF FORECASTS
Property forecasts can be confusing and conflicting. The market’s going up! No, the market’s going down. Media outlets will make all kinds of predictions but the truth is no one has a crystal ball. That’s why it’s important to know what factors actually drive property price growth, so you don’t get caught up in the hype.
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FUNDAMENTALS IN THE FACE OF FORECASTS
Property forecasts can be confusing and conflicting. The market’s going up! No, the market’s going down. Media outlets will make all kinds of predictions but the truth is no one has a crystal ball. That’s why it’s important to know what factors actually drive property price growth, so you don’t get caught up in the hype.
Here are some fundamental factors that are essential to understand:
The importance of infrastructure
Firstly, you must understand the impacts of infrastructure on the area of your prospective investment. Infrastructure projects such as roads and buildings can have a significant impact on the housing prices. However, not all projects are made equal – some infrastructure projects will only lead to short-term house price increases and these are best to avoid.
Whereas, a highway or a hospital is more likely to drive up the price long-term. Projects that improve accessibility generally bring more people to the area, thus placing pressure on the demand for housing.
Victoria is currently undertaking numerous transport infrastructure updates, this will undoubtedly have an impact on the liveability of Melbourne’s north and west suburbs. As presented in the table below, the introduction of the Melbourne Intermodal Terminal – a key freight project – has increased the population of surrounding areas by 33%. Suburbs like Mickleham have experienced significant growth in housing prices – driving up prices upward of $50,000.
Large projects that improve the liveability of an area are often a good indicator of future house price growth is set to take place.
Proximity to essential and lifestyle amenities
The next thing to consider is whether or not a property is close to essential and lifestyle amenities. Essential amenities include things such as major roads, public transport, health facilities and educational institutions – vital things that everyone needs access to. Lifestyle amenities refer to things that enhance quality of life, such as the beach, park lands, major shopping centres and entertainment precincts. Proximity to essential amenities is vital to attracting tenants.
The graph below shows the relationship between rental yields and liveability. Bellfield in Melbourne has a low rental yield of 2.7%. This can be largely attributed to its 10km proximity to the CBD.
Land availability and demand
Another characteristic you must understand is supply and demand. You may want to look at land availability and town planning to see what the council is approving in terms of new developments. This can ensure there is not going to be an oversupply in the future. This will give you a clear idea of how the land will be released in the coming decade. This can also inform the vacancy rates and capital appreciation of your properties over time. If there is an oversupply, the price of your property is unlikely to grow.
Useful research methods
When it comes to researching locations, the search can be confusing. Data discrepancies and conflicting opinions between sources can often occur. For those who want to do their own research, there are great, free resources available online. For example, the ABS – you can dive into census data to retrieve demographic information. This information can give an indication of the growth that the area has experienced and what kinds of people are living in the area. Council websites, state or government websites are also very helpful. They tend to release planning documents which can tell you about any upcoming or ongoing major projects. This can be a great indicator for future growth in that area. You can also contact the local real estate agent in the area and ask to speak to the property manager. A property manager is an amazing resource and wealth of information about a specific community. They are likely to have a good grasp on the quality of tenants and any other queries about properties in the area.
Property quality
Lastly, you must understand how to assess the quality of the property. One thing to look out for are timeless interiors. Colourful walls and art deco may suit your personal taste but may not be attractive to everyone. Fashionable interiors will not stand the test of time. You are purchasing your investment property with the intention of renting the property out to someone else so keep things clean, modern and neutral.
Secondly, a property must have high quality fixtures and fittings to attract high quality tenants. Everything chosen for the property must be investment grade, high quality but suitable for different tastes. The property should also be open – floor plans are important in this aspect. Open spaces are attractive to a wide range of people. Access to natural sunlight is also incredibly important. Darkness and lack of light can be off-putting to future tenants.
Thirdly, privacy and security are extremely vital for a good investment property. Some questions to ask here are: do the neighbours have a window that looks directly into a bathroom or bedroom? Are the front windows of the house so open that passersby can see directly into the home? If the answer is yes, then consider installing blinds or curtains. Security features such as security doors and alarms systems are also features that are attractive to tenants.
Last but not least, don’t underestimate the presence of a car park. Undercover or outdoor parking can be the difference between a tenant choosing your property and someone else’s.
At Alliance Corp we have access to thousands of dollars of information to help aid your decision. You could spend hours trawling through documents of every location you are considering. Or you could partner with a property consultancy and save yourself hundreds of hours.
To get you started, we have a free due diligence checklist which you can use when assessing a prospective investment.
If you would like a more thorough analysis of a potential property or area, speak to experienced property investment professionals.
AllianceCorp has a dedicated research team with their finger on the market pulse. You can request a complimentary strategy session with a Senior Property Coach below.