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One thing you will quickly learn as a property investor is that although the markets will dictate your profits, you can positively impact those profits by pairing the right strategy with the right market.
The key to finding the right market – a market that will boost your profits – is to look for an area primed for growth. The economic health of an area is a strong indicator of the potential for solid capital growth.
Where to Look
ABS – Check the Australian Bureau of Statistics for a wide variety of informational reports based upon their data collection efforts.
News reports and magazine articles are a great source of information. Here you can get status reports on infrastructure projects, learn about new developments, council plans, industry changes and much more. Remember – if something will affect the economic prosperity of an area, either for the good or the bad, it will impact real estate values as well.
Talk with a number of agents and property managers who are familiar with the area. Get their take on the viability of the market, but only after you have already done your research.
How to predict an area on the verge of change
Look for the ripple effect.
Changes to a nearby suburb can certainly have an impact on property values in your region. Not only do you need to understand the area you are considering investing in, but you should research surrounding areas as well.
For example, let’s say that Suburb A has an average home price of $300,000, whereas 2km away the average home price of Suburb B is $200,000. The variation in house price is $50,000 per kilometre. If both suburbs are comparable in terms of amenities and opportunities, guess where people will buy? Yes, they’ll choose affordability over proximity.
Look at the area’s council. Do they have an employment development strategy and/or an outlook for their community? How will their plans affect the local economy in terms of real estate, small business and the environment?
What causes the ripple effect?
Change is a part of life that impacts not only individuals, but neighbourhoods as well. Industry and government infrastructure developments are undertaken with the intent of improving the quality of life for area residents, creating new opportunities which then – like the ripple from a stone in a body of water – bring political, social, cultural and economic change to an area.
These events increase the rate of demographic change as more individuals move into the area to fill employer needs and enjoy the effects of gentrification. An increase in area house prices and improved perception of the area combine to create a desirable location for both investors and homebuyers.
Before drilling down into a suburb, take a closer look at the area in its entirety. This can help you spot locations that may experience the ripple effect.
What to Look For
In addition to macro and micro market drivers, pay close attention to the incomes of the area demographic. Can they support the average house price or is there a huge disparity between income and house price? If the income can barely cover the cost of housing then keep looking – although the market may be bearable, there is little to no room for growth so your investment will likely remain stagnant.
If, however, market conditions are such that more affluent individuals will be moving into the area, improving the economic conditions in the region, then it’s worth a closer look.