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Investing in 2020: three factors to consider when identifying future growth areas

Tuesday, 28th Jan 2020

With Perth’s property market widely believed to be turning a corner, many investors are already considering acquiring another investment property in 2020. While low property prices are presenting some great opportunities for aspiring buyers, it’s also an important time to remember that not all properties perform (and recover) equally, and smart asset selection will be critical when it comes to securing the right property. In the article below, we look at three key growth drivers that can influence a property’s short and long-term growth potential.

Supply

Much like any commodity, property is largely influenced by movements in demand and supply – when demand increases faster than stock on market, this places upwards pressure on prices. On the other hand, a suburb with high levels of supply and limited demand will generally be a lot more susceptible to price decreases.

Investors who are seeking properties with strong capital growth prospects will often look towards suburbs that are tightly held, where there are few property transactions occurring and limited supply coming on stream, as this can provide ideal conditions for price growth (especially as buyer competition increases in a recovering market). Unsurprisingly, these suburbs are also generally more resilient during market downturns – something that is very important for those investing with a long-term outlook.

So which areas should you look out for?

Areas with limited supply tend to be those with a strong owner-occupier presence, where low density zoning doesn’t allow for a significant influx of new stock. Suburbs located in desirable school zones are a great example of this, as the surrounding zoning will predominantly favour family-style housing on larger lots, providing fewer opportunities for new developments.

Examples: Bateman and Carine are both tightly-held family suburbs with a strong owner-occupier presence due to their proximity to school zones and local amenity. Both have featured annual house price increases of 2.4% and 5.3% respectively in a market which is down -2.9% collectively.

Upcoming Infrastructure

As well as looking at the current demand and supply factors influencing a given suburb, savvy investors buying with a long-term outlook will also consider an area’s future growth potential in their property selection. Future infrastructure upgrades, such as developing travel links, can provide an important catalyst for capital growth for a number of reasons, the first being the increased accessibility they offer.  Take the Forrestfield-Airport link as an example – for a suburb like Forrestfield which has always been on the fringe of the Perth greater region, having a direct transport route to the City could help to attract city workers, in turn promoting a new wave of buyer demand (especially given the area’s relative affordability).

In addition to this, such infrastructure upgrades will often be accompanied by zoning changes in surrounding areas, which in turn facilitates increased residential and commercial development. These new activity centres can play an important role in stimulating the local economy and job market, with the resulting employment opportunities again bringing in greater demand from buyers and renters.

Examples: Perth’s Forrestfield-Airport Link is set to benefit a number of areas in Perth’s East through the development of three new stations at Redcliffe, Airport Central and Forrestfield.

Rezoning

While it’s important to always consider a suburb’s long-term growth potential, many investors will also look at this in conjunction with short-term growth drivers when searching for a high-performing investment. One factor that can serve as a short-term catalyst for a property’s performance is rezoning. Rezoning often takes place in areas where additional density is deemed necessary to cater to growing demand, and can provide an important springboard for investors through the increased development potential it can add to a property.

While this in itself can help to boost a property’s value, rezonings often also bring in new demand for the property typologies they facilitate, such as interest from owner-occupiers looking to downsize, as well as increased interest from investors and developers looking to capitalise on the density increases to land bank. Buyers who identify these zoning changes early can therefore benefit significantly from rezonings by negotiating favourable deals on high-potential properties before the changes (and ensuing competition) come into effect.

While rezoning can offer significant upside potential when timed well, buyers need to beware of entering these suburbs too late when prices are already hyperinflated due to the influx in competition and demand from buyers. This is why it’s important to ensure the area also has robust long-term growth prospects in place, such as proximity to amenity and employment centres, which will help to support the growth of property values in the longer-term and protect buyers in cases where proposed rezonings don’t come into force.

Example: Nedlands has recently benefited from a rezoning, which saw 25% of properties in the area up-zoned to higher density to cater to growing demand for housing diversity in the area.

Selecting properties that outperform

When it comes to property investment, a property that offers an additional 1% capital growth per year can have a huge impact on your bottom line. As such, getting the fundamentals right in your property selection will be critical to your long-term return on investment.

At Momentum Wealth, our buyer’s agents have extensive experience in researching and identifying investment-grade suburbs, and a proven history of selecting properties that outperform the broader market. All properties we select are subject to a stringent set of criteria which has been carefully developed by our in-house research team, providing our investors with a significant advantage when it comes to building a high-performing property portfolio. To find out more about our past performance, or to organise a consultation, visit https://www.momentumwealth.com.au/about-momentumwealth/performance/