Demand not the only equation

Monday, 5th Oct 2015

supply and demand thumbMany investors place a large focus on the future demand of properties when searching for their next acquisition. However, there is another equally important factor that must be taken into consideration.

Although robust demand for property is important to help ensure values rise, many investors don’t consider the supply side of the equation.

Oversupply of property in your investment area has the potential to significantly restrain the capital growth of your assets.

Quite simply, investors need to look at their properties and consider how easy it is for others to build additional dwellings of the same type in the same location.

In other words, how much competition will your property have and could this increase significantly?

In any market that has a high supply of a specific asset, including housing, consumers of that product will have more choice, which subsequently reduces your ability to demand a higher price.

A good example of this is residential estates on the urban fringe of metropolitan cities, where large areas of land can be readily developed for new housing.

Another example is apartment buildings in central business districts, where new, large-scale apartment complexes can be easily built.

Typically, it’s best suited to acquire investment properties in established areas with high demand and limited availability for new stock to be added.

This can help contribute to higher capital growth from your investment properties.