Understanding the factors that trigger price growth helps ensure you pick a winning investment at the right time.
When it comes to investing in property, capital growth is king. While income helps you hold on to your investments over the long term, it’s capital growth that will have the most impact in the end.
In order to grow your property portfolio quickly, you want to get into the markets that are about to surge in value, to ride the upswing and the resulting growth.
So what are the early signals you should watch out for?
If demand exceeds supply, buyers will quickly snap up available property, so the amount of time a property spends on the market drops, resulting in low average days on market.
If demand is on the rise, vendors are no longer compelled to offer discounts to attract buyers.
Real estate agencies will often sell properties by auction when the demand for property is strong. This allows potential buyers to outbid each other and push prices up for the seller. So a rising number of auctions and high auction clearance rates may be a sign of a market heating up.
A low vacancy rate means there is a shortage of rental accommodation for the number of tenants in the market. Generally, a 3% vacancy rate indicates that a market is balanced. A rate below that means there is a shortage of rental properties, and above it means a surplus.
When the vacancy rate starts to fall, this often results in higher rents and an increase in prices as investors move in to take advantage of higher returns.
A high yield is a precursor to capital growth, according to Jeremy Sheppard of DSRdata.com.au.
“Tenants are more agile than owner-occupiers,” he says.
“When a location becomes popular, tenants will be the first to move there, which places stronger demand on rents, initially pushing them up.
“Then investors wade into the market, attracted by the higher yields. And then the owner-occupiers finally get their act together. Some of the renters by this stage may decide to buy. All this buying activity now places pressure on property prices.”
A low level of available properties up for grabs in an area means that owners are not willing to offload their properties and anything that comes online is quickly snapped up by buyers.
If there are a large number of people searching for property in a location where there is not much property for sale, this could indicate strong demand and could be a sign that values are about to rise.When a location becomes popular, tenants will be the first to move there.
When a suburb has underperformed for an extended period, while markets around it are starting to rise, it might mean that the suburb is about to see a turnaround as well. Generally, the longer the market has underperformed, the quicker the recovery is going to be when it comes.
When assessing a suburb, make sure you look at these data in combination with the other stats, to get the full picture.
Remember that time in the market helps ensure that you reap the maximum reward from your investments. This means that the longer you are in the market, the higher the chances of making big profit. However, you could make quicker gains by timing your entry and buying before prices start rising.