There are many articles written about the research that an investor must undertake to find a location that will grow in value and has good investment fundamentals. This is your due diligence process and every investor’s research process looks different when determining where to invest.
For new investors, it’s crucial to firstly understand what those investment fundamentals are.
Now that you know what you’re looking for, you can head to certain places to obtain the information. You may decide to be led by property experts and buyer’s agents, leveraging off of their experience.
Other experts can include local real estate agents with strong knowledge of the area’s property market, the local Council, research houses and even local town planners can be a good place to start. Data companies, such as RP Data and SQM Research can be worth considering for data to either back up your research or fill in the blanks. A mixture of specific factual information, such as the numbers, recent sales and statistics around migration, along with your own qualitative research can be crucial. This could include your sense of the properties as you wander through them, things you have heard from the neighbours about what is desirable and even rumours about new transport or government spending in the area.
Firstly, a suburb with the best growth will not be within everyone’s capacity to purchase. It may not be affordable for you, or it may not match up with your risk appetite. Once you have this established, you are able to quickly rule out locations regardless of their potential.
Turn to the 'macro'
The first thing to consider when looking for a growth suburb is the macro aspect.
There are thousands of suburbs across Australia, and there's no way you can check them all. Property buyers should become familiar with the concept of market cycles and try to understand where each state and territory is in its cycle.
You can then look within a location with good growth prospects for broader trends. For instance, has the government identified the location as a growth area?
Looking a little closer
As you try to choose a region or more localised area you may find that your price point helps you refine a suburb choice quickly. Other statistical indicators, relating to your strategy, can also help you shortlist. This may include rental yield, proportion of houses vs. apartments, income growth and a number of other statistics that investment experts regularly hang their hats on.
You may want to consider wider locations that you can afford and going through them, checking for overall drivers and growth prospects in the areas. If they're largely driven by tourism, then you'll need to understand the potential fluctuations in the labour market, seasonality, and how this may flow-on to your investment property.
It will also be worth looking at government plans on a wider scale to try and pinpoint areas of growth. If, for instance, a rail line is being put through a whole area and there is significant infrastructure investment, then you may want to consider it more closely. Be wary though, sometimes these initiatives are reactive, rather than proactive – that is, they are put in as a result of growth rather than in expectation of it.
There are a number of things that drive capital growth to look out for. Here are a few:
1. New infrastructure projects;
2. Supply/demand issues;
3. Strong migration into the area/high population growth forecasts;
5. Strong employment drivers.