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Four rules for outperforming the current market

Friday, 1st Aug 2014
Categories: Market News, Newsletter

outperform

The Perth property market seems to have entered a period of cautious stability where any value growth in the short-term is likely to be patchy. This isn’t surprising given the market’s strong performance in 2013 and the current high vacancy rates.

With the heat taken out of the market and many buyers sitting on the sidelines, there is a fantastic opportunity for savvy investors to enter the market and make a cold and calculated purchase.

Forget the days when you could casually make a purchase and rely on the general movement of the market to help you achieve your investment goals.

More than ever you need to acquire properties that have the inherent characteristics for driving growth, regardless of what the wider market does. But this is no easy task, so here are 4 key rules to help you on your way.

Rule #1 – Put greater emphasis on supply

The impact of supply on price growth is a very logical one, but it’s something that many investors somehow overlook. Demand-side factors always seem to garner more attention and focus.

Put simply, when the supply of a particular type of property is insufficient to meet the level of demand, the value of that type property should increase.

You therefore need to pay close attention to the supply of property in the areas you are evaluating and particularly the potential for future supply, given the long-term nature of property investing. This is critical for finding high-performing properties in today’s market.

A property in a location where there is an abundance of developable land will generally underperform as there is an endless conveyer-belt of newer properties competing for buyers and tenants.

Naturally, areas with limited future supply tend to be those that are well-established. If you buy a house in an area that is 30-40 years old and not too far from the CBD, you know that the supply of property is unlikely to increase substantially as there is no more land available to build on.

Assuming people hold a desire to live in that area and, better yet, you predict said desire to increase over years to come, then you can be reasonably confident your property’s value will rise.

Oversupply issues are of particular concern for apartment buyers in some parts of Perth at the moment. If an area has a lot of land ripe for development, or plenty of old buildings ready to be demolished for brand new apartment complexes, supply of apartments in that area could be plentiful. This is bad news for values.

Rule #2 – Think about the value-add potential

One way to outperform the market is to manufacture your own growth. This means finding a property whose value can be improved beyond the cost of making the improvements.

But increasingly, you need to be a little more creative than simply whacking on a fresh coat of paint and installing new carpets. You need to look for opportunities that the average investor will miss, such as the potential for adding a granny flat or developing the property in a clever way.

Even if you plan to buy and hold for the long-term, it makes sense to choose a property that has value-add potential. This way, when the time is right you can manufacture your own growth through renovation or development and ultimately outperform the market.

Rule #3 – Pay close attention to local planning

In the current market, it’s important to take a ‘local’ focus and look out for areas that are changing both physically and in the minds of buyers and renters.

There are many examples of such areas in Perth and these should outperform the rest of the market. The key is identifying which areas are being ‘reassessed’ and investing before the changes are reflected in values.

A good place to start is by closely monitoring relevant plans and policies by local councils, which often set the scene for the gentrification of an area.

But keep in mind that it can take many years (even a decade) for new policies to be introduced and there can often be numerous changes before policies are finally implemented.

Rule #4 – Follow the infrastructure trail

Infrastructure is always a major driver for price growth because it increases the attractiveness and amenities of particular areas. The benefits of infrastructure, however, are generally only recognised after the new infrastructure is in place, which means buying before this happens can generate excellent returns.

Within Perth, there is a vast array of major construction and rejuvenation projects currently in progress, recently completed and planned for the near future. From new hospitals and stadiums to major upgrades of transport infrastructure, these projects will create a number of local real estate hotspots that will outperform the market.

Conclusion

All investors should try to ‘beat’ the market by finding investment opportunities that will generate above-average returns. And this is especially true in the current market when average returns are unlikely to be spectacular.

While these rules will help guide your search, the reality is that finding the right properties requires a great deal of hard work and know-how. This is why more and more investors are relying on professional organisations such as Momentum Wealth that have the expertise and resources to dramatically increase the chances of success.