Researching properties in a recovering market: what you need to know
Recovering property markets can present a great opportunity for investors to enter high-performing suburbs and secure lucrative property deals whilst affordability levels are at their highest. However, whilst a key opportunity to capitalise on capital growth, these transitioning stages can also present a number of challenges and dangers for property buyers. With different suburbs and sub-sections of the market often recovering at varying paces, the right research can be essential in helping investors differentiate between a problematic asset and a property with high growth potential. Here are some fundamental research tips to keep in mind when navigating these complex markets.
Don’t rely on a single factor
More often than not, there will be multiple factors contributing to a property market’s performance. In a recovering market especially, it’s important not to reply on one single market influencer when analysing the investment potential of a given area. For instance, whilst many buyers will consider demand when choosing an investment location (i.e. is the property close to amenity or a local employment hub?), investors will often overlook the equally important factor of property supply. An increase in demand for a given location can certainly support positive property price movements; however, if that suburb is also facing an oncoming surge of stock due to a planned land release, this influx of newer housing (and the increased competition that comes with it) can keep prices stagnant for longer. As such, it’s vital that investors consider market drivers in conjunction with each other in order to make a more informed assessment of a market’s overall growth potential.
This concept is something investors equally need to consider when reading property market data itself. For instance, a suburb that has experienced an influx in high-end transactions may be recording unusually high levels of price growth. However, this price movement may be a reflection of the composition of sales rather than the performance of properties in the suburb as a whole.
Tip: When assessing property market data, read statistics alongside complementary data sources to identify any wider market trends that may be influencing data results.
Narrow down research to specific sub-sections
Just as wider property markets can be influenced by different demand and supply factors, growth drivers can vary considerably between different suburbs, and even streets, within a single area. In a recovering market, not all suburbs and properties are going to perform equally. This is often where headline figures can become misleading, with overall movements in price growth (both upwards and downwards) not necessarily reflecting the opportunities available across all suburbs. For instance, whilst average days on market in Perth averaged at 79 days in the 12 months to March 2019, Momentum Wealth research showed that properties in the Northern suburb, Heathridge, went under offer in an average of sub 40 days across the same period – a factor buyers would have to account for in their negotiation and acquisition strategy.
Tip: Whilst a macro-level approach is important in identifying broader areas for investment, narrow down your research to specific sub-sections and properties to identify the best investment opportunities in recovering markets.
Look towards future infrastructure updates
When assessing the growth potential of different suburbs in any given property market, it’s important not to rely solely on data trends as an indication of future performance. Whilst data can provide a good idea of how a market might behave in future (for instance, a sustained lowering of build approvals is generally a strong indicator of a future decline in supply), other long-term drivers such as future infrastructure updates will often be equally important in influencing buyer demand and property price movements.
Significant upgrades to transport routes and employment hubs will often form a key catalyst for growth in other types of local amenity (and vice versa), all of which can influence property values in surrounding localities. A prime example of this is the suburb of Bayswater, which is set to benefit from a redeveloped train station and significant infrastructure upgrades as part of the Government’s Metronet project. The changes in zoning that accompany this will likely increase the development potential of surrounding areas and support the growth of further amenity – both factors which can positively influence property price movements in the surrounding region.
Tip: For information on some of the private spending updates influencing Perth’s local property market, check out the Perth Private Spending Report from Momentum Wealth’s research division.
Don’t always focus on the current growth area
As property prices begin to rise in a recovering market, it’s not uncommon for certain suburbs to experience heightened demand and increasing competition from buyers. As investors, we are often instinctively drawn to areas we know are already experiencing growth. Whilst these suburbs can seem like the ‘safer’ investment option, they don’t necessarily represent the best buy for investors. In fact, by the time a suburb is quoted in media headlines, the ideal time to enter this area has often passed and price growth is already well underway. In many cases, however, these recovering locations will often have a neighbouring suburb that shares similar underlying growth drivers but has not yet experienced the same price movements. Providing there isn’t an underlying problem or factor hindering price growth, these suburbs are often well-positioned to benefit from the next stage of the market recovery.
Tip: Whilst the ‘ripple effect principle’ can be a good strategy for identifying future growth areas, don’t overlook the importance of factors that can influence the performance of individual properties and streets within the suburb.
Hire a buyer’s agents
There are many different aspects that go into researching investment opportunities and correctly analysing market data, many of which can’t be covered without time, ‘insider’ knowledge and market expertise. In a market that’s becoming increasingly competitive amongst buyers, engaging a local buyer’s agent to source, research and negotiate properties on your behalf can give you a critical advantage in the property research and acquisition process. Whilst buyer’s agents can save you significant time in searching for suitable properties, their knowledge of the local market, government planning policies and price drivers can be invaluable in helping investors identify superior investment opportunities before they’re on the radar of other buyers.
At Momentum Wealth, our Perth buyer’s agents are supported by daily market insights from our in-house research department. These insights help us narrow down the highest-performing investment areas so we can offer our clients a superior advantage when it comes to identifying the best investment opportunities.
To find out more about our services, or to organise an obligation-free meeting with one of our buyer’s agents, visit the Momentum Wealth website to submit a consultation request.