When you’re building a property portfolio, your eye is often fixed on the long-term results. It’s about sustainability – you want to amass a collection of assets that will one day pay itself off in capital gains. You want something that will be in demand five, ten years from now – a portfolio that will see you into a comfortable retirement.
As a result, one of the most important things an investor has to monitor in order to make the right decisions is market trends.
“The property market behaves just like any other commodity – it works according to the laws of supply and demand,” explains John Lindeman, who has made his name as one of the country’s top property market analysts.
“If you bought and sold at the right time, you can easily double your money while the property was paying for itself.”
However, many investors who don’t know how to spot a growing market at the right time can find themselves losing out when they either read the wrong signs and get into the wrong market or enter the right market at the wrong time. So, investors have to know where to look for the right clues as to which market is about to boom.
How to tell an area is set to boom?
An easy way to tell if an area is ripe for growth potential is to “compare houses data over time”, Lindeman says.
“There's a correlation that should be about the same. If it there's a lot more properties in the market now than what was sold in the last year, then you got more than a year’s worth of stock, if you think about it. And therefore, prices can't go up,” Lindeman says.
He cautions buyers against focusing on an area’s past glories, however.
”I would ignore past performance. There's no guarantee that it's going to be continued because the conditions could change. Look at those basic fundamentals – the number of houses and the number of listings for sale. That's where you start.”
An aspect that suggests economic growth on the horizon is the number of infrastructure projects in the pipeline.
“Areas where there's a lot of infrastructures going on, especially transport infrastructure, have got the best potential because the federal and state governments are putting so much money in to try and boost the economy. This can cause an increase in housing demand,” Lindeman says.
“Highway duplication is an example – as the highway is duplicated, all the workers have to go and rent in the towns nearby. And then, after it's finished, people will want to move in, like retirees. The tourism industry will increase, and holiday makers will want to go there. And so the demand for properties to buy will go up as well.”
Aside from infrastructure, Lindeman also advises investors to look into markets that have the potential to benefit from the ripple effect produced by a nearby booming market.
“The market ripples in two ways –one is the horizontal ripple. As certain areas increase in price, they become unaffordable, and first time buyers move out to the next cheapest area. Now, when most properties start going up in price, the existing homeowners in those areas, mostly potential retirees, decide to sell their property and downsize to a more affordable property in a regional town. As they move, it pushes up prices in that regional area!”
For more, be sure to listen to episode 7 of YIP Talk.