When a location goes into crisis, an investor may find themselves reaching the nearest exit. But while the market as a whole can be unpredictable and volatile, there is also its ever-changing melody to take into account.
The short-lived nature of the market cycle has proven time and time again that when a sector folds, it will eventually go up, and vice versa.
For those who want to sow their wealth in a fast-growing market – and enter it just at the right time before the values ??take this anticipated rise – that can mean that a location is about to "climb" in value?
Understanding how a “boom” behaves
Peter Koulizos, President and Lecturer in Property of Australia (PIPA), Property Investment Professionals of Australia, says that he has never known in modern history that a real estate boom would last more than three years.
"You will see lately that Sydneys and Melbournes have not gone more than three years, and Hobarts has gone for less than that," says Koulizos.
“Sooner or later, steam comes out of demand and supply catches up, and sometimes it will go in the opposite direction. Instead of having a "boom", real estate prices will fall, like what happened 12 months ago. »
Given the high speed at which property values ??can increase during a "boom" phase, this can be a dangerous time for those who want to quickly grab some of the opportunity before it does not decrease.
"Prices are starting to escape, so it's a bit of a dangerous period because people are afraid to miss out and they really want to try and jump on the bandwagon and get there a little too late, "said Metropole Property Strategists director Brett Warren.
Warren advises investors to minimize their risks when they follow periods of "boom" while keeping an eye on the bigger picture. "Don't make long-term decisions based on short-term results," he says.
"There are a number of things we look at to make sure we get the right property or the right location in the long run rather than just focusing on the short term."
Keep track of larger movements
The increased demand for housing comes down to the existence of a magnet that will continue to attract people to a specific location – and this attraction mainly comes in the form of new possibilities of employment.
"Unemployment is falling, underemployment is falling, it is easier to borrow money, which translates into an increase in the number of loans, and the amount of money borrowing is also increasing, "Koulizos shares of the more significant changes that may indicate a" boom "is on the horizon.
Employment growth is one of the main indicators of a healthy market that is most likely to be oriented towards sustained future growth, says Warren.
"We want to buy where there is employment – large-scale employment hubs – an airport modernization or a modernization of the CBD which could create 10,000 or 20,000 jobs because that's where people will flock, "he says.
As the nature of employment changes and remote work arrangements allow some places to gain ground, Warren says that "this trend will continue to happen, but it will always be the capitals that will produce most of the jobs. "
Be aware of the land available
A surge in demand can also be driven by new government initiatives that help buyers and investors to enter the market.
Koulizos says: "Almost overnight there is an increase in the demand for goods, but the problem is that you cannot increase the supply of goods overnight because it takes months or years to build houses or units or apartments. "
If it is expected that a substantial number of new apartments will be built in a specific area, once these are built, increased interest will ultimately be reached and prices will therefore start to fall. In saying this, it is worth learning about any future development that could overly address demand.
To ensure that values ??continue to rise over a longer period of time, there must be a high land / asset ratio, says Warren.
“We want to buy in areas where the land is lacking. So if there are still five to ten years of land available, stay clear, while finding an area with no land available other than parks and reserves is ideal. You can usually tell by taking an aerial photo and zooming out, ”says Warren.
Warren also recommends that investors buy in a higher owner-occupied market, because if homeowners represent, for example, 60% to 80% of housing, this indicates a shortage of rental housing.
"If you buy in regions where incomes are rising, where there is job growth, most of your tenants will be professionals who work in larger job centers nearby and who have higher incomes and can absorb rent increases much more easily, ”he says.
Take a look over the fence
If a certain place or a capital is already experiencing a "boom", it is a known strategy for buying in the immediate vicinity; also known as "the ripple effect".
"People who want to live in the expensive suburbs but who cannot afford it, they discover that the neighboring suburbs are very similar in the street landscape and the style of housing, then it benefits", shares Koulizos.
However, such a growth net should not be taken for granted. It also largely depends on what the neighboring suburb has to offer residents.
Koulizos warns that "you can't just go shopping in a cheap suburb thinking that one day it will go up, because one day it will never go up because the cheap suburb can be inexpensive because it is full of factories and warehouses "
Good school areas, living areas and walkability are also becoming more important, Warren shares, so if a location has these attributes, it is more likely to attract buyers and tenants.
Access previous documents
When headlines start to swirl as a speculated "boom" approaches, real estate data can provide more transparency where it is lacking. But how do you absorb a market analysis report?
"Rental yields should be a secondary consideration. Cash flow is good, but it won't change your life, it will be capital growth that will change your life, ”says Warren.
"People like to go back five or ten years back to determine how a suburb performed, but we are looking for historical growth, so what we can do going back twenty years is that we can see last twenty years and get that consistency for capital growth. »
While knowing for sure what the future will bring is out of reach, Warren says that "looking at history can give us a very good indication of how the suburbs have behaved in good and bad times. "
According to Koulizos, some indicators of real estate growth include; properties are on the market for a shorter period of time, the seller's discount amount decreases, bid liquidation rates increase and "property prices start to rise over a relatively short period of time".
However, Koulizos also says that investors should be aware of a variety of determining factors when reading market reports.
"Don't focus on one thing and just think that because the auction rates are rising in the suburbs, it will be a big suburb," he said. "You have to consider a number of different things."
Let's not lose sight of future objectives
Rather than looking for "the next hot spot," Warren says that investors should "focus on the long term and where they want to be."
"Work backwards and put a strategy in place to get there, and most of that is going to be choosing the right location because 80% of the capital growth of a property really comes from ; location, "he says.
Warren recommends that investors meet with a real estate strategist who has more than a decade of experience in investing in the market.
"They should be looking for a specialist, not a general practitioner. If I buy in Brisbane, I would like [a property strategist] who has 10 or 15 years of experience in Brisbane, rather than 10 or 15 years of buying all over Australia, "says Warren .
