Property hotspots are what many investors seek because this is where real capital growth can be made. But, is this always the case?
Property investment insiders are suggesting that its pointless to look for the next it suburb due to the sheer size and diversity of the Australian property market. Instead, according to investment advisors, property investors should steer away from predictions about hotspots, and they should focus on drivers of supply and demand within individual suburbs. They should review sales data and use their knowledge of the property market to buy wisely.
The Problem with Following Property Market Predictions
Forecasts that try to sum-up the direction of the market, typically cover many smaller markets or sub-markets. These sub-markets are diverse and complex so the usually dont fit neatly into the broader market picture. If a property investor fails to look at these sub-markets based on their individual merits, then they can make poor investment decisions that may be costly later. Lets look at the Australian property market in greater detail to get a more accurate picture.
There are approximately 15,000 suburbs in Australia, with some 700 in Sydney, 540 in Melbourne and 450 in Brisbane. So when economists suggest that the Sydney property market will realise a 4 percent growth over the next 12-months, this information can be misleading. This can be a problem for an inexperienced investor who may apply this prediction to a unit that theyre looking to buy in a popular, and often overpriced suburb. Lets say a first-time investor uses this forecast and buys an off-the-plan apartment in Sydneys Zetland. Sure this suburb is in demand, and this has pushed-up property prices, so when this investors apartment is complete he will be competing with hundreds of other property investors whose property has also been completed. Therefore, its likely the value of the property purchased by the investor wont realise a capital value increase of 4 percent initially. In fact, the investor may find that due to an oversupply of similar properties to his that the value of his property will fall below his cost to purchase the property. In addition, he may also have to lower his rental fee to attract a tenant, as the market will be flooded with options.
How Can You Avoid an Investment Nightmare?
If youre looking to buy an investment property, then:
Narrow down your suburb choice, and concentrate your efforts on finding out what drives supply and demand in these areas.
Look at each suburb of interest individually. Focus on what is selling, look at property type, features and size, consider sale prices, rental asking prices, and how long property has stayed on the market before it sold.
Look at an areas demographics, anticipated population growth, and what types of infrastructure and development is scheduled for the area.
These are all indications of what makes for a good investment, rather than one that will not perform.
Investment Pitfalls to Avoid
There are a number of suburbs in major Australian cities that will be oversupplied with certain types of property in the near future, property investment experts recommend steering clear of these and focusing your efforts on other types of developments. Lets look at these now.
Avoid High-density apartments in the central business district (CBD), Fortitude Valley and the West End.
Consider Character homes in low-density areas that are established, have good schools, transport and renovation activity.
Avoid High-density off-the-plan apartments in Mascot, Zetland and areas in Parramatta and Rhodes.
Consider Property with good growth potential, situated in the eastern areas, north shore and inner west.
Avoid High-density off-the-plan units and apartments in most suburbs.
Consider Smaller, boutique developments and homes in well-established older areas such as those in the inner north, south and Belconnen and Woden areas.
Avoid High-density apartments in Docklands and Fishermans Bend. Also oversupplied areas with new-high-rise apartments.
Consider Low-density apartments and property on land that is well-built with affordable ongoing running costs.
Avoid Off-the-plan apartments in the CBD.
Consider Suburbs and character property situated in the middle region of the city, 10-20km from the CBD that have development potential.
Avoid Lifestyle property situated away from the major population.
Consider Character property in Hobart city suburbs, such as North Hobart, New Town and West Hobart.
Avoid Suburbs that are developing, such as the outer and northern suburbs and the southern metropolitan area.
Consider Homes situated 10-20km from the Perth CBD that have sizeable blocks, with an easy to rent home.
Are you looking to buy an investment property? Then contact eChoice, well help YOU find the right home loan.
Written by eChoice
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans. Best of all our service is cost and obligation free!