When assessing the market profile of an area or trying to find the next growth markets and/or suburb, you first have to ask, what are you actually looking for? The answer to this question will come down to what is your budget, what is your strategy and what is your desired outcome?
Once you have established these parameters the following are some considerations you should make when doing your due diligence:
The Market Cycle
Timing the peak of the market should/will never be an exact science, however, you don’t want to find yourself buying at the peak of a growth cycle. It is best to aim to buy in the early stage of the upturn so that you have minimised your time spent in a flat market and are well positioned for growth in the near future. As mention, it will never be an exact science and there are opportunities to be made in any market, however, it makes sense to try and maximise the obvious advantage of timing the cycle. Valuation firm Herron Todd White does a great ‘property clock’ that gives an overview of where different markets in Australia are at in terms of their market cycles.
Population Growth
Look for population growth as that correlates strongly with demand. As more people look to move into an area it creates more demand for property. It’s also important to understand what the supply levels are like in terms of proposed construction projects, both now and in the future to ensure the area is unlikely to become oversupplied. As part of the demand and supply story, we want to look at some more specific indicators such as vacancy rates to ensure our properties are likely to be tenanted longer term. An average vacancy of less 3% is desirable.
Local economy is on the rise
This includes economic & demographic factors such as consumer confidence, employment growth, average incomes and wages growth as well as proposed infrastructure projects. Affordability is a large driver of property prices, not necessarily just because somewhere is cheap. When people can comfortably afford to live in desirable locations, prices are likely to rise.
You should be looking for areas where people are likely and able to pay a premium to live and have stable secure employment. As a general rule of thumb, we look at a maximum of around 30% of income to mortgage commitment ratio. In terms of infrastructure, you want to look at the spend the government are committing to the area as these projects are likely to play a part in improving the areas appeal as well as stimulating jobs growth.
Lifestyle
Why do people want to live in an area? Desirable locations are generally close to amenities such as parks, cafes, restaurants, schools, even transport hubs. Climate and other drivers such as proximity to the coast, rivers or national parks are also appealing locations that drive lifestyle demand.
Once you’ve established your budget, strategy and your long-term goals, considering the above fundamentals will give you a head start to choosing a market that is likely to perform well over the medium to long term.