Hot Prop­erty

A com­plete DIY guide to hot-spotting your next invest­ment property

After work­ing in the real estate industry for some time now and being an investor myself, I found many people were con­fused on how to find the next hot spot, and no won­der, all the inform­a­tion was frag­men­ted and there was no clear pro­cess to fol­low. I wanted to cre­ate some­thing I can give to friends, cli­ents and to use for myself.

So, I have cre­ated a step by step DIY guide on find­ing the next hot spot before the media does, as it is well known, if the media is report­ing on it, is already too late. I will be hold­ing your hand along the way on each step in this series, so stay tuned.

Invest­ing in prop­erty can be a very worth­while use of your money, how­ever, before you part with your funds, there are a mul­ti­tude of things that you need to con­sider first.

What Is A “Hot-Spot”?

A hot-spot can be defined as an area that is not attract­ive and has not attrac­ted a lot of atten­tion. They have usu­ally been under­per­form­ing for some period of time com­pared to neigh­bour­ing areas that are performing.

Basic­ally, they are usu­ally unat­tract­ive loc­a­tions that become attract­ive for vari­ous reas­ons. An attract­ive sub­urb becomes unaf­ford­able for a demo­graphic and they move to the next best option, and thus, this new loc­a­tion becomes our elu­sive “hot­spot”. This may not just be a sub­urb next door, it is the next best option. For example, a new high­way or train sta­tion is built and knocks 14mins of a trip to work, but it is fur­ther away. This loc­a­tion may be a new mas­ter planned estate with new affordable/cheap house and land pack­ages, and boom you all of a sud­den have a hot spot. Kellyville is a case in point.

Where To Start

To ensure you get it right from the begin­ning, you need to find the best city or region. If the city you are look­ing to invest in is set to increase, then you are already off to a great start as a rising mar­ket will help lift the val­ues of most suburbs.

Start­ing in the right state can make all the dif­fer­ence, as mar­kets phase in and out of dif­fer­ent cycles. Choos­ing the right city is the next step and involves an ana­lysis of long-term pop­u­la­tion trends, eco­nomic activ­ity, ana­lysis on the advant­ages of the indus­tries that employ the major­ity of the pop­u­la­tion, and the future sup­ply and demand of land and buildings.

Some people say it is hit and miss when it comes to find­ing a growth loc­a­tion, but I don’t believe this to be true. I believe it is more of a sci­ence, and even if you’re usu­ally 80 per cent right, you’re still going to do very well when it comes to buy­ing mul­tiple prop­er­ties.

You will get many “prop­erty gurus” telling you what is hot or not but every loc­a­tion will go through all the stages of the prop­erty cycle (decline, a trough, return, boom and a prop­erty mar­ket peak).

Advice should be given depend­ing on an area’s stage in the cycle, not just from cherry-picking the areas on the rise. It is there­fore, very import­ant to under­stand price dir­ec­tion, as people who can­not afford a pop­u­lar sub­urb will look to the more afford­able areas nearby.

I sug­gest you look for art­icles by well-known experts who are talk­ing about the prop­erty clock and stages of the cycle. This will give you an informed and edu­cated view of where the mar­kets are at in terms of growth, and bet­ter enable you to use your own judgement.

In the fol­low­ing art­icles I have cre­ated a com­plete guide to what the experts look for when it comes to hot spot­ting a loc­a­tion. I have cre­ated a sys­tem to help with your decision-making, which will allow you to bet­ter identify whether you think an area is a hot-spot or not. Some of these points may feel more sig­ni­fic­ant to you than oth­ers, so focus on the ones that are import­ant to you.

CITY SEARCH

Choos­ing a city can be a hard one as there are many per­sonal factors you need to consider.

Factors such as;

  • Liv­ing arrangements
  • Prop­erty deal
  • Invest­ment strategy
  • Fam­ily and mar­riage status
  • Budget

I’m not going to give any tips on this but just keep in mind where that city is in the prop­erty cycle.

Ignore the media

The media only the reports on opin­ions and old data, you’re try­ing to look into the future here not the past. Don’t for­get they are report­ers not invest­ment experts. The funny thing is I have met many of them and they don’t even own an invest­ment prop­erty.

If you do find your­self watch­ing the media look at it from a dif­fer­ent set of glasses. When you think about it they are selling a story, so every­one will watch it, and they can remain on TV and do more stor­ies. When watch­ing it think to your­self “this is what the aver­age per­son is watch­ing” and then move on with this think­ing and say to your­self “what will they do with this inform­a­tion?”. Use this and your sense of fear of miss­ing out or mar­ket crash should subside.

So you have chosen a city or town, I’m a big believer money can be made in any city even in a down mar­ket. I have seen many of my friends’ buy the right prop­erty, in the right loc­a­tion, and their prop­er­ties go up in value even though the media is say­ing the sky is falling.

I can’t say this enough “a city is made up of dif­fer­ent mar­kets and sub­mar­kets with dif­fer­ent drivers” and that is the whole point of this series, and then you add on the prop­erty mar­ket cycles as an addi­tional factor.

RIPPLE EFFECTS

1) The price ripple effect

One way to invest­ig­ate where to buy your invest­ment prop­erty is by learn­ing about the ripple effect. The real estate ripple effect behaves like a rock splash­ing into a quiet pond; the ripples flow on and cre­ate price move­ment in the pond/city, impact­ing all that sur­rounds the start­ing point (which is nor­mally the expens­ive sub­urbs first and moves on as buy­ers are priced out).

You’ll see this dis­played in the most effect­ive way on www.realestate.com.au, which I use myself . In the investors tab you clearly see the price ripple stem­ming from key CBD’s and other hot-spots in each state. If some data is miss­ing, how­ever, I sug­gest you get a sub­scrip­tion to www.ripehouse.com, as this will provide you with more detail and has excel­lent tools to help nar­row your search.

1.2) Developer ripple

Neigh­bour­hood change is inev­it­able as developers and gov­ern­ment infra­struc­ture are often designed to upgrade the qual­ity of life for the cur­rent loc­als by improv­ing ser­vices and open­ing up opportunities.

Devel­op­ment also cre­ates a ripple effect by pro­du­cing eco­nomic, social, polit­ical and cul­tural change. This speeds up demo­graphic change, which is driven by jobs and infra­struc­ture upgrades, and pos­it­ively impacts upon house prices and the per­cep­tions of these areas. It also res­ults in the gentri­fic­a­tion of such areas.

Investors need to keep in mind the big picture/vision (mas­ter planned com­munit­ies are a great example of this), as this will make it sim­pler to assume the ripple effects of incomes and there­fore, where people will live. For example, if there is a growth cor­ridor strategy being rolled out by state gov­ern­ment what impact will this have on small busi­ness, real estate and the environment?

Another type of ripple is when there is a new devel­op­ment estate next to an older, estab­lished sub­urb. People who can­not afford the new devel­op­ment estate will usu­ally go to these estab­lished sub­urbs and ren­ov­ate their home instead. These are usu­ally the closest to the devel­op­ment estate and the best pur­chase, espe­cially if you like to ren­ov­ate for profit.

GENTRIFICATION

2) Gentri­fic­a­tion wave

Gentri­fic­a­tion is basic­ally a trend of a lower income demo­graphic to a higher lower income demo­graphic fol­lowed, by devel­op­ments, cre­at­ive busi­nesses, lower crime rates and higher land prices.

For an extreme example of gentri­fic­a­tion is Red­fern in NSW, look at it now, with artis­ans, cafe cul­ture, and trendy shops. Ok now think back to 2004 and remem­ber the Red­fern riots, and large con­cen­tra­tion of poverty.

Here are some gentri­fic­a­tion indicators;

  • Look for afford­able areas in a loc­al­ity you’re inter­ested in and ask your­self are they next to more expens­ive suburbs?
  • Invest­ig­ate how the prop­erty prices have moved. Have they shif­ted in the past 2–3years?
  • Is the stand­ard of cof­fee improving?
  • Is there steady price growth.
  • Look at the demo­graph­ics, who is mov­ing in and out of the suburb.
  • Is there a trend of young res­id­ents with on good incomes? This is a strong sign that the sub­urb is on the cusp of gentrification.
  • Look for hip­sters and arty altern­at­ive people.
  • Look for signs of knock down rebuilds and ren­ov­ated homes pop­ping up in the area.
  • Look for new cafes or new retail­ers com­ing into the suburb.

2.1) Look for the next “hot-spot”

Look for clues of the next ‘Black­town’ or ‘Par­ra­matta’ and trust your instinct.

Many years ago if you were from West­ern Sydney, you used to be dis­crim­in­ated against if you went for a job in the city, but now big com­pan­ies are mov­ing their work­force to West­ern Sydney.

To get ahead and cap­it­al­ise on up-and-coming areas, look for indic­at­ors that a sub­urb is on the rise. Life­style fea­tures, such as cafe bars, res­taur­ants, and pop-up retail­ers, and being water will always add sub­stan­tial money to your invest­ment. It is nor­mal for undesir­able sub­urbs to become hot-spots over a 10–20 year period or after massive redevel­op­ment like Rhodes in Sydney for example, so think long term, espe­cially if the areas are going to be rezoned.

2.2) Pro­longed underperformance

When an area has under­per­formed for a long time, while mar­kets sur­round­ing it are on the upswing, it might mean that the sub­urb is about to turn as well. Nor­mally, the longer the mar­ket has under­per­formed, the rapid the return is going to be when it comes.

When research­ing a sub­urb, make sure you look at this data along with the other stats and indic­at­ors to get the full picture.

Don’t for­get that time in the mar­ket helps make sure that you get the best return from your invest­ments. Prop­erty is a long term game, so the longer your are in the game, the more chance of see­ing a boom. You can’t always time the mar­ket so time in the mar­ket is the key, but you could have just found your­self an area set to boom.

2.3) Ride the gentri­fic­a­tion wave

If you look at areas like Red­fern in the 90s com­pared with today, it demon­strates the solid and rapid wave of gentri­fic­a­tion that flows from the city into the sub­urbs. You can look at where that wave is up to and, in my opin­ion, buy­ing just out­side of that wave is a stra­tegic­ally sound move.

SUPPLY AND DEMAND

I know this is obvi­ous that sup­ply vs demand plays a big part in prop­erty prices, but it has cer­tain nuances when you look a little deeper.

For example, the Indian demo­graphic in Toongab­bie go nuts for duplexes. They will pay a premium for them all day long, but show them an exist­ing house that costs less and they say “who is going to mow the lawns” and don’t show much interest.

The key is to find out that what type of prop­erty is driv­ing the demand and who is demand­ing it!

3) Find high-demand, low-supply areas

The amount of sup­ply versus demand in the mar­ket is always a big driver of growth. If there is no more vacant land and coun­cil is very restrict­ive on con­struc­tion, but more and more people are pour­ing into the sub­urb, prices will have no choice but to go up. Some areas of the inner west of Sydney are a prime example of this.

It there­fore, pays to do some research into future hous­ing devel­op­ments in your chosen area in case there is a risk of over-supply. You can do this by vis­it­ing the local coun­cil to find out if there are any plans for more hous­ing, or check­ing with a prop­erty data agency for the num­ber of prop­erty sales.

Note: Keep in mind that with rental growth comes cap­ital growth. The same drivers of demand and the same short­age of sup­ply that cause prop­erty val­ues to rise, also cause an increase to rent prices. The main thing is not find­ing high yield, but dis­cov­er­ing the imbal­ance amongst demand and sup­ply that leads to rent rises and value.

3.1) Assess future stock supply

For example, if an area typ­ic­ally clears 400 houses a year, but has already sold 500 prop­er­ties and has a large sub­di­vi­sion of 1500 lots about to be released in a month’s time or in the next year, then it’s smart to watch and see if the mar­ket absorbs the new stock. A good example of this is when developers go crazy and build lots of units all at once.

The con­struc­tion and sale of apart­ments hap­pens in waves. There are some risks out there at the moment in Par­ra­matta and Black­town, as there’s a glut of apart­ments com­ing onto the mar­ket. These areas should, there­fore, be treated with cau­tion, unless you have found a very high-quality unique apart­ment that has everything going for it.

3.2) Look for areas where the rental yield is rising

Rental yield indic­ates that an area is pop­u­lar among renters and when renters become homeown­ers, they tend to buy in the same area they’re rent­ing in.

Under­stand­ing the import­ance of pop­u­lar areas for renters is cru­cial, as get­ting a lease is much easier than get­ting a mort­gage. This means a renter has more flex­ib­il­ity to move and when an attract­ive loc­a­tion becomes avail­able, renters will be the first to take action.

If renters find a loc­a­tion attract­ive, it is also rarely the case that homeown­ers will not, as both look for sim­ilar qual­it­ies in where they live. So, with renters demand­ing accom­mod­a­tion, investors buy­ing, and even­tu­ally homeown­ers buy­ing, prices are more likely to go up.

Investors may notice that the yield in these attract­ive loc­a­tions is higher than in other areas, so it will attract them into the mar­ket once renters have influ­enced the neigh­bour­hood value.

A 5 per cent rental yield should be used as a rule, which trans­lates to @$1 in weekly rent for every $1000 spent pur­chas­ing an invest­ment property.

Yield by itself is not always the best sig­nal for price growth. Some people I talk to look at yield without any thought of why a yield is so high. Some­times why yields are high is because of a price drop. You really need to check what prop­erty prices were a year ago and have a long hard look at the trend.

Note: Gross yield can get unreal­istic and have stat­ist­ical anom­alies, so it really is import­ant to val­id­ate this before basing any invest­ment decisions on it.

DEMOGRAPHY

4) Demo­graphic shift

Investors need to under­stand people’s opin­ions and how their desired life­styles have a dir­ect impact on prop­erty prices.

This means get­ting to know a par­tic­u­lar group of people and what they gen­er­ally want or need. Immig­ra­tion is one of the key factors, as dif­fer­ent cul­tures have dif­fer­ent wants and desires. If you get to know what they are, you can begin to make edu­cated predictions.

Under­stand­ing dif­fer­ent gen­er­a­tions, such as the Baby Boomers, as well as Gen­er­a­tion X and Y, is another key factor. Each gen­er­a­tion is hav­ing an impact on the prop­erty mar­ket because they want to live in dif­fer­ent areas and they have dif­fer­ent wants. You need to under­stand what areas are attract­ing res­id­ents, and the type of people each area attracts.

Under­stand­ing demo­graphic shifts and why people move can help you uncover emer­ging hot­spots before any­one else has. Some­times this requires a gut feel and vis­ion for the future that oth­ers don’t have, of course backed up by data. Do your best to think clearly in this situ­ation and avoid the naysayers.

4.1) Look at the demo­graph­ics of people mov­ing into the area

Demo­graph­ics is to be one of the most over­looked but import­ant prop­erty price drivers. Under­stand­ing buyer’s aspir­a­tion and desired life­styles has a straight impact on all prop­erty prices. This is where most ren­ov­at­ors go wrong on buy­ing in the wrong loc­a­tion or spend money on fea­tures the buy­ers will not pay for.

For example, sub­urbs where the median age is about 35 tend to gentrify faster, as this demo­graphic usu­ally has a bet­ter income and there­fore, can afford to buy or rent more expens­ive properties.

4.2) Look for areas with rising population

Pop­u­la­tion is also a strong sig­nal but it alone does not push up prop­erty prices. You need to see it in con­text low D.O.M. and rising incomes com­ing into the area. When you com­bine mul­tiple sig­nals it tips the mar­ket over the edge for a price rise.

Australia’s pop­u­la­tion growth rate eased slightly in 2015 to 1.6 per cent – still one of the highest of any advanced nation – but that growth is not evenly spread.

High-density liv­ing is quickly becom­ing the norm with more people will­ing to live in apart­ments and as mas­ter planned com­munit­ies help reduce urban sprawl we will start to see more of this.

Cow pad­docks one year, new tract hous­ing the next.

If you thought sprawl­ing new sub­urbs were on the way out, how­ever, think again. Most of Australia’s fast-growing regions still include new hous­ing estate areas.

The Aus­tralian Bur­eau of Stat­ist­ics (ABS) makes the point that Aus­tralian pop­u­la­tion growth is chan­ging, as it is driven by immig­ra­tion and more people mov­ing away from inland towards the coast.

This begs the ques­tion, how­ever, of where all those inner and middle sub­urbs are with new unit devel­op­ments? The answer is quite reveal­ing. Even though a lot of inner sub­urbs are being developed the amount of people actu­ally liv­ing in them has greatly dropped over the last 40 years, along with the pop­u­la­tion in some locations.

Note: Believe it or not the fast­est grow­ing regions don’t come up on your “top 10 of fast­est boom­ing sub­urbs” list most of the time. It is simply that new build­ing stock is meet­ing demand, while inner and some­times middle ring sub­urbs, have a lot more devel­op­ment restric­tions which slows the build­ing pro­cess. You also have a lack of land, this leaves a back­log (just look at Sydney unit prices) and people lin­ing up to buy off the plan in great locations.

SUBURB SEARCH

5) Days on market

The aver­age time a prop­erty sits on the mar­ket in a sub­urb will show you how the area is per­form­ing. When you have low days on mar­ket com­pared to the aver­age of the rest of the area it means the demand is quite high and prop­er­ties are selling fast, but be aware of the type of prop­er­ties that are selling fast, you don’t want to be stuck with a lemon. A good example of this was North Par­ra­matta where D.O.M. (Days on mar­ket) dropped almost overnight and prices skyrock­eted as town plan­ning changed and a lot of houses became devel­op­ment sites.

High days on mar­ket can be par­tic­u­larly bad for ren­ov­at­ors want­ing to flip houses quickly, but if you can afford to wait it can be very prof­it­able for these types of investors. Keep in mind if you want to sell fast be pre­pared to drop your price quickly.

To explain D.O.M. simply, if the over­all city takes an aver­age of 80 days to sell a prop­erty, a sub­urb with a 30-day aver­age is clearly in high demand with buy­ers. Be wary of low days on mar­ket as the mar­ket could be peek­ing and people are mak­ing silly decisions try­ing to buy. On the other side (a high D.O.M.) it doesn’t mean it could not be a good long term buy, as prop­erty is a long term game, just look at it holistically.

The rule
If days on mar­ket are trend­ing down it’s a sig­nal (one of many) that demand is increasing.

5.1) Per­cent­age of stock on the market

The num­ber of prop­erty on the mar­ket and its trend is also a good sig­nal to look at. Ana­lys­ing this as a per­cent­age of the total num­ber of prop­er­ties in a sub­urb can give you many insights. A fig­ure less than 2 per cent could indic­ate that sup­ply is gen­er­ally low and homeown­ers don’t like to sell and like the area. A good example of this is Win­ston Hills where owner occu­pi­ers have lived there for a long time and will ren­ov­ate, rebuild or die before they think of selling.

A fig­ure of more than 3 per cent could indic­ate people don’t mind selling and mov­ing out of the area. These sub­urbs people are upsiz­ing and invest­ing, we like to call these trans­ition sub­urbs. Stock on the mar­ket is gen­er­ally abund­ant and without many other good sig­nals prices aren’t forced to rise.

Always keep in mind the total amount of prop­er­ties that are in the sub­urb. Have a look at year-on-year stock on the mar­ket for that month – is it nor­mal? Assess the trends, make an edu­cated guess, look at the other sig­nals, and talk to agents to con­firm your suspicions.

Low Stock
A low levels of prop­er­ties for sale in an area means that own­ers are gen­er­ally not happy to sell their homes and any­thing that comes on the mar­ket is quickly pur­chased up by buy­ers. This is nor­mal for a mar­ket like Kings Langley, as it is an owner-occupier sub­urb and hardly goes down in price.

High Stock
A high level of avail­able prop­er­ties on the mar­ket could mean that sellers are pos­it­ive about get­ting the price they want and they think it’s a good time to sell. This could be sea­sonal like the spring selling season.

Note: If the mar­ket is absorb­ing this trend well, it can mean it is a hot mar­ket. If days on the mar­ket are high, how­ever, there may be a lot of stock on avail­able, which can res­ult in the value going down.

5.2) Vendor discounting

This dis­count refers to the dif­fer­ence between the ask­ing price and the final sale price, and it is shown as an aver­age across sales in a given time frame. Know­ing how much vendors are dis­count­ing their prop­er­ties can be very reveal­ing and can indic­ate whether a sub­urb is pick­ing up.

If the dis­count is quite large (above 8 per cent), then it’s safe to assume it’s a buyer’s mar­ket, this usu­ally means sellers are drop­ping their price to get their sale across the line. It can be a good thing for buy­ers but if the rate of dis­count­ing increases it could mean a fall­ing market.

A small dis­count (less than 4 per cent), shows it could be a seller’s mar­ket and prices are on the rise. This trend means that the level of dis­count­ing will drop because if demand is increas­ing, vendors are no longer com­pelled to offer dis­counts to attract buyers.

ROOM FOR GROWTH

6) Income growth

To fuel growth, a mar­ket needs to be bear­able as well as equit­able. If the aver­age house price in an area is $100,000 and the aver­age wage in that area is $500 a week, then this wage can only just afford the prop­erty price. There is not much space for growth and this is known as a bear­able mar­ket (the wages can bear the house price).

Assume a wealthy income demo­graphic moves into that sub­urb or town and the wage aver­age jumps to $1000 per week. Not only can the mar­ket afford the house price of $100,000, and also leave some space for equity growth. We call this an equit­able mar­ket, and prices of prop­erty could double to around $200,000. There is a dir­ect link to prop­erty prices, so if wages double so can the prop­erty in the area. Think about it, it’s all about desirab­il­ity and afford­ab­il­ity of demo­graph­ics. This is why you some­times see one group of people dom­in­at­ing an area and price move­ments, Gir­raween is a good example of this.

EMPLOYMENT

7) Easy access to employ­ment opportunities

Employ­ment is a solid driver of growth. People don’t want to be com­mut­ing a long time to work or worse in grid­lock traffic (just look at Sydney). You want a diverse eco­nomy of employ­ers. People fol­low the work, this is why city plan­ners are try­ing to attract big busi­nesses to Par­ra­matta and spread out the mass work com­mute all over West­ern Sydney. If your prop­erty can eas­ily access a pro­spect­ive tenant’s work you will get bet­ter ten­ants and bet­ter long term growth.

People migrate to Aus­tralia and inter­state just to find work and this is why Sydney just keeps on get­ting big­ger. Keep an eye out for big announce­ments of banks and head office move­ments as it can make or break a local area.

The last thing you want to do is invest in an area that only has one key employer, because if they go bust, there will be no jobs in the area and this can have a dom­ino effect on the local economy.

TRANSPORT

8) Con­ges­tion

This is espe­cially a prob­lem in areas such as West­ern Sydney, and it can make all the dif­fer­ence in prop­erty prices. If people know that they are going to struggle to get to work dur­ing peak times and there are no trans­port altern­at­ives, it can actu­ally neg­at­ively impact the price of the prop­erty in that location.

The speed of which people can get to work may also make all the dif­fer­ence. For example, if a sub­urb has fast trains dir­ectly to Par­ra­matta or the city, this will pos­it­ively impact the prop­erty price.

This is why when there an infra­struc­ture announce­ment of a major con­nect­ing high­way (tolled or untolled) there is usu­ally a spike in prices as work com­mutes and trans­port of goods can be cut in half.

At the end of the day it comes down to aver­age travel time. It doesn’t mat­ter if it is by car, bus, train, tram, boat, plane of ele­phant. Yes some people travel every day by plane.

GOVERNMENT AND INDUSTRY

9) Indus­tries and gov­ern­ment movement

Gov­ern­ment and major industry play­ers are begin­ning to move their offices and man­u­fac­tur­ing facil­it­ies out to West­ern Sydney because the major­ity of the work­force ori­gin­ates from this area. This work­force, there­fore, also con­trib­ute sig­ni­fic­antly to the con­ges­tion prob­lem when they are trav­el­ling into the city for work, so mov­ing the work­places will assist with eas­ing this congestion.

Gone are the days where people don’t mind trav­el­ling to their jobs. These days, people want a walk­able life­style where they can walk to everything they need. Indus­tries and gov­ern­ments are begin­ning to under­stand this, and are start­ing to roll out plans to bring the work­force closer to the work­ers, instead of the work­ers trav­el­ling great dis­tances to the work­place. If you can find out where these jobs will be, this could be a poten­tial hot-spot.

Be cau­tious of pur­chas­ing a prop­erty in a one-industry town – look in areas that have mul­tiple employ­ment drivers instead. An example of this is a min­ing town, or areas that have one or two drivers for employment.

KEEP UP TO DATE

10) Infra­struc­ture and big announcements

This is a good indic­ator that the area is likely to see a spike in hous­ing demand as work­ers flock in for jobs. Pro­jects that have already com­menced are prefer­able, as prom­ises can fall through when gov­ern­ments rotate and budget pri­or­it­ies shift.

Hav­ing good access to main roads, major high­ways, major hubs and satel­lite cit­ies, will always be an attrac­tion to a sub­urb and make it valu­able. Look out for mas­ter planned com­munit­ies, planned devel­op­ment, large zon­ing changes like growth cor­ridors and much-needed infra­struc­ture improve­ments, such as new train lines and free­way con­nec­tions, as this often indic­ates the area will grow in demand.

The say­ing “you don’t know what you don’t know”, can cer­tainly hurt you when it comes to prop­erty. If there are some infra­struc­ture on the way you don’t know about and let’s say it’s a major high­way or rezon­ing of high rise units too close. This can all affect the value of your prop­erty. How­ever, this inform­a­tion may not come up in con­vey­an­cing reports. This is why it is import­ant to employ the help of buy­ers’ agents who can dis­cover this vital inform­a­tion for you and save you from a bad investment.

Pub­lic trans­port, new roads, hos­pit­als, good schools and other pub­lic amen­it­ies are key to identi­fy­ing a growth area. Check out your state government’s long-term spend­ing plans to find out what pro­jects are in the pipeline and where they’re loc­ated. I used this exact for­mula to pre­dict the explos­ive growth we had in Black­town and we still con­tinue to see con­sist­ent growth there.

Hos­pit­als are par­tic­u­larly bene­fi­cial in terms of boost­ing prop­erty val­ues in the sur­round­ing area. If you have 750 beds com­ing into a hos­pital, it is going to bring a high demand for essen­tial ser­vices sur­round­ing it. The biggest impact we have seen when it comes to prop­erty prices was the hos­pital upgrade in Black­town when Premier Mike Baird announced $400 mil­lion in fund­ing for its redevel­op­ment. Now that it is com­pleated it is one of the largest employ­ers in the area and prices around it have fol­lowed dramatically.

10.1) Indus­trial areas and new jobs

Small-to-medium sized busi­ness own­ers want to be close to their busi­nesses, which means smal­ler indus­trial areas and mixed-use busi­ness areas are becom­ing more pop­u­lar. Keep an eye out for the announce­ment of busi­ness or tech­no­logy hubs and indus­trial areas, as this can be a key hot-spot to buy into.

It is not uncom­mon for developers to come in with planned com­munit­ies and bring up the stand­ard of liv­ing for an area in the out­side pocket. Nor­w­est Busi­ness Park and Bella Vista are per­fect examples of this as they were both ori­gin­ally cow pad­docks. The plan was to use them as a mixed-use busi­ness park to attract unique busi­nesses, as well as a pres­ti­gi­ous res­id­en­tial devel­op­ment, and now Bella Vista is one of the most expens­ive pock­ets of hous­ing, des­pite being sur­roun­ded by lower-priced sub­urbs. Now this area has gone to whole new level with the North West Rail Link on its way and has attrac­ted even more prestige with Busi­nesses spend­ing big time to get space in The Esplanade in this busi­ness park.

11) Coun­cils and Gov­ern­ment planning

11.1) Coun­cil health check

A pro­gress­ive and entre­pren­eur­ial coun­cil can make all the dif­fer­ence in prop­erty prices. Put it this way, if a coun­cil does not believe in devel­op­ing or renov­at­ing, or takes forever to get devel­op­ments approved, struggles to get infra­struc­ture right, doesn’t main­tain coun­cil land and finds it hard to get grants for improve­ment pro­jects, do you think the area will exper­i­ence good growth? It may for a time, but if it’s too dif­fi­cult to get pro­jects through, people will take their money elsewhere.

Check with your local and state gov­ern­ment to see if there are any plans for infra­struc­ture in the sur­round­ing area. If the coun­cil has got it right, it can lead to explos­ive growth and can unlock an exist­ing need. Kellyville, for example, was plagued with con­ges­tion for many years because the pub­lic trans­port options were very unat­tract­ive to res­id­ents. As soon as the gov­ern­ment began work on a new train sta­tion, how­ever, the area became a very attract­ive place to live. The pro­ject has since unlocked a 55 per cent increase in prices since 2010.

11.2) Devel­op­ment Applic­a­tion (DA) registers

Check the devel­op­ment applic­a­tion pro­cess and find out how long it takes to get DA and BA (Build­ing Approval). If approval takes less than two months, this will make the area much more attract­ive to build­ers, developers and renovators.

11.3) Future growth pro­jec­tions and information

Coun­cils are your friend when it comes to get­ting inform­a­tion for research and work­ing with them is import­ant when you are try­ing to identify where to invest your hard-earned cash.

There is a lot of use­ful inform­a­tion you can get from coun­cil. For example;
Com­mer­cial space alloc­a­tions
Reports with growth pre­dic­tions
What is hap­pen­ing with edu­ca­tion (another key driver in some areas)
Trends in employ­ment and what they are doing to grow this
Future zon­ing and what can be allowed

You can also get spe­cial­ised inform­a­tion on ser­vices. For example;
Pro­fes­sional services

  • Sci­entific and tech­nical services
  • Fin­ance
  • Health care
  • Insur­ance services
  • Man­u­fac­tur­ing
  • Social assist­ance

A great tip is to look for land that has been set aside for future devel­op­ment. For example;

  • TAFE
  • Private schools (always an attraction)
  • Uni­ver­sit­ies
  • New roads or widening
  • Green space

Within the coun­cil the best sources of inform­a­tion will be the eco­nomic devel­op­ment man­ager and the town plan­ner. Town plan­ners are usu­ally very pas­sion­ate about the plans for the area as they have nor­mally have had a hand in devel­op­ing it, but just like any pro­fes­sion you get the good, the bad, and the ugly. Some will be very help­ful and help you achieve what you want, but make sure you do your home­work first so you know what you are talk­ing about.

The first step is to go to the web­site and read all the rel­ev­ant inform­a­tion you can find. If you can’t find it give them a call. After you think you have got all your ammuni­tion book a time to pick their brains and find out how they think about the area. This will help you with build­ing approvals and to make sure you can do what you want in a par­tic­u­lar area and you may get inside word on any plan­ning changes that will affect you.

Note;
For a more spe­cific approach, for mar­ket inform­a­tion see the eco­nomic devel­op­ment man­ager. Respect their time as they are help­ing you make money.

11.4) Entre­pren­eur­ial council

Assess whether or not the coun­cil is an entre­pren­eur­ial one. It is the duty of a coun­cil to pro­mote the area’s liv­ab­il­ity, add street appeal and intro­duce new attrac­tions, how­ever, some coun­cils are stuck in their ways and don’t seem able to gentrify or revital­ise an area. When search­ing for an entre­pren­eur­ial coun­cil, look for one that has man­aged to remove the stigma from an area and increase its attract­ive­ness. Black­town and Par­ra­matta are excel­lent examples of a suc­cess­ful entre­pren­eur­ial council.

11.5) Rezon­ing

To find inform­a­tion about rezon­ing and plan­ning you can start with the local coun­cil web­site. Here, you will be able to find out whether the prop­erty is in a straight res­id­en­tial zone or in a mixed zone. Be aware that if you are in a zone that allows you to build medium-to-high res­id­en­tial prop­er­ties, your next door neigh­bour may be in a high-density zone, and this is some­thing that won’t show up in the con­vey­ance check.

It is also import­ant to check with coun­cils, as some­times they could be in the pro­cess of final­ising a new Local Envir­on­mental Plan (LEP). You could gamble on buy­ing a prop­erty in a new, increased-density area, but there is no guar­an­tee that your prop­erty will be rezoned in their new plan roll out. Have a look at the plans and see if you think it will help with growth in the area.

Tip

You can some­times dis­cover devel­op­ment sites by group­ing sellers together. If you are the first to know, it can give you an advantage.

12) The “20-Crane rule”

Once the mar­ket starts get­ting hot­ter, developers are often attrac­ted and con­struc­tion tends off like a rocket. This is usu­ally after a draft LEP has been gaz­etted (approved) by the state gov­ern­ment and developers have cer­tainty of what they can construct.

When you see no cranes and then almost overnight, see 2–3 cranes in the air, sirens should go off in your head. A sat­ur­a­tion of units that all look the same can give buy­ers too much choice (over­sup­ply) and prices start to be nego­ti­ated down. You can check with the coun­cil and local news­pa­pers for devel­op­ment applic­a­tions approved and weather the pop­u­la­tion growth fast enough to absorb it. For example, if you’re buy­ing a unit as an investor and there are already a lot of unit devel­op­ments planned near your prop­erty, this could over­sup­ply the market.

Over­sup­ply is the single biggest risk to any investor to cre­ate rental vacancy and stag­nant, or even declin­ing values.

13) Num­ber of people at ‘home opens’

A great way to develop a good under­stand­ing of the mar­ket, before the activ­ity has time to be trans­lated into pub­lished stat­ist­ics, is to attend as many ‘home opens’ as pos­sible in an area. The num­ber of people look­ing through a prop­erty is a strong indic­ator of future demand.

Numer­ous view­ings tend to motiv­ate poten­tial buy­ers to place an offer sooner than they oth­er­wise would to ensure they don’t miss out. It also encour­ages buy­ers to place a higher offer if they think there will be com­pet­i­tion for their desired property.

13.1) Online interest

One of the advant­ages of prop­er­ties being almost com­pletely sold online these days, is that you can find out the level of demand that is cur­rently on that mar­ket and this can help you for­mu­late your invest­ment strategy. For example, if you go realestate.com.au you can see the level of interest in a par­tic­u­lar area and com­pare it to the state aver­age. If it is a high-demand mar­ket, you can focus on prop­er­ties that are up for auc­tion and try to buy them before auc­tion day. If it is a low-demand mar­ket, it may be bet­ter to con­sider buy­ing after auc­tion day if possible.

14) Schools

Secur­ing a home within the bound­ary of a high-performing school can add hun­dreds of thou­sands of dol­lars to the pur­chase price. In Sydney, data is show­ing that par­ents wish­ing for their kids to attend a good school are driv­ing up house prices in these areas. In the past year, for example, there has been an extraordin­ary price growth in catch­ment zones for some of the most sought-after and up-and-coming pub­lic schools around Parramatta.

For the Chinese and Indian buy­ers in par­tic­u­lar, being close to pub­lic trans­port and a good school are pri­or­it­ies, and they will buy invest­ment prop­er­ties in pop­u­lar school catch­ment areas just to get their chil­dren into a good school.

As private schools increase their fees ahead of the infla­tion rate, some­times par­ents are unable to enroll their kids or pay the exor­bit­ant tuition fees, so the altern­at­ive is a qual­ity pub­lic school.

Gir­raween Pub­lic School is a prime example of this, as it might work out cheaper to buy a house in a pub­lic school zone area than to pay private school fees. If a prop­erty in Gir­raween is out­side the catch­ment area of Gir­raween Pub­lic School, you can lose $50,000 off the selling price of your prop­erty. These catch­ment areas can also change, so it is import­ant to be aware of this because it can sig­ni­fic­antly impact upon the worth of a house.

The web­site, domain.com.au, have mapped where you can find all this inform­a­tion and you can tar­get these areas. It is still recom­men­ded that you call the schools and try and attain a map as well because these zon­ing areas change all the time.

15) Choose an area with good-quality stock/dwellings

An example of this would be to pur­chase a period-style apart­ment in a block of four, rather than an apart­ment in a high-rise pre­cinct where all the apart­ments are pain­fully sim­ilar. Period homes, with their unique qual­it­ies, tend to fetch bet­ter prices and are in much higher demand than other prop­erty types.

Find­ing an area with a good mix will increase its sus­tain­ab­il­ity, help dif­fer­en­ti­ate your prop­erty from oth­ers, and lower your com­pet­i­tion. This is because if a developer builds 40 of the same pro­ject homes and they all become avail­able at one time, renters will be spoilt for choice and it will, there­fore, res­ult in many investors lower­ing rent prices as a way to dif­fer­en­ti­ate their property.

Note:
These examples are clas­sic supply-and-demand prob­lems, but if there is a good mix, demand should be steady.

16) Sub­urb ripple

Invest­ing before a ripple of price growth can be pre­dict­able and prof­it­able. The city will already have rings of afford­ab­il­ity com­ing from the CBD and busi­ness hubs. These prices usu­ally ripple out the same way as a boom grows prices and the momentum pushes into submarkets.

Cre­ate a map by mark­ing median prices and draw a ring from the CBD. Check adjoin­ing sub­urbs for a 5 per cent vari­ation. This way you will clearly see any dom­ino sub­urbs. Fol­low this dom­ino suburb’s median price trends every 3 months. Under­stand prop­erty cycles and check other sig­nals to see if the sub­urb has star­ted to take off. With the sub­urbs with your budget set up a prop­erty list­ing alert and track move­ments. 10km from a CBD is a good rule but in places like Sydney you need to con­sider we have mul­tiple C.B.D.s like Par­ra­matta for example.

A lot of buy­ers say to us “I can’t afford to live in a good area” think­ing that attract­ive sub­urbs will be a good buy, but if you look for these growth areas a lot of them are driven by afford­ab­il­ity (what the aver­age per­son can buy). Find an afford­able sub­urb that will dom­ino. This nor­mally starts from expens­ive sub­urbs and ripples to more afford­able loc­a­tions. This nor­mally gives you more bang for your buck than those “desir­able sub­urbs”. This requires good tim­ing, which means you need to know what phase of the cycle the local prop­erty mar­ket is in, so you can max­im­ise your chances of rid­ing the wave of growth.

MICRO-SUBURB SEARCH

17) Walk the streets

Noth­ing beats going to open homes. Count the amount of groups of buy­ers (not indi­vidual buy­ers). Observe the type of people, are they mums and dads or smartly dressed investors? Do you need to push in to see the house or is it a ghost town? Talk to the agents and find out if they are any good? A bad agent is always good to buy off.

It is import­ant to talk to people in the area and in the street to find out their per­cep­tion of the loc­a­tion. You will be amazed what you can find out just by talk­ing to the next door neighbour.

You will also notice the feel of streets change. Some will be invit­ing and child-friendly, while oth­ers will feel unsafe. This feel can have a major effect on pri­cing from street to street.

18) Do people want it (sup­ply and demand)?

Open home num­bers can help but some­times deceiv­ing. Noth­ing beats good data on vacancy rates, auc­tion clear­ance rates, and days on mar­ket to paint you a pic­ture on sup­ply and demand. Find out how fast prop­er­ties are being sold. Black­town in 2015 for example was a hot­spot and some say it still is, with clear­ance rates of 80 per cent and 20 D.O.M. at the height of the mar­ket. Investors felt like they were going to miss out and they were pay­ing a premium of over $30,000 to $60,000 more than the advert­ised price. That was a mar­ket with what we call ‘white heat” and people ended up pay­ing more because of their emo­tions than busi­ness sense.

When you see a mar­ket like this be very care­ful because it’s like shop­ping at the super­mar­ket when you’re hungry (it’s never a cheap shop and you end up buy­ing junk food). How­ever, being able to gauge other buyer’s emo­tions can help you time the mar­ket cycles when it comes to buy­ing and selling to max out your profit.

18.1) Rental mar­ket tight­en­ing and trends

Track­ing the rental mar­ket can help you with insights into a par­tic­u­lar suburb.

Renters are an import­ant part of the equa­tion as the can move quickly into a more desir­able area and push up prices. Rental prices respond much quicker than sales prices. You can see this clearly when new infra­struc­ture comes online or sub­urb dynam­ics change. Yields will gen­er­ally be 5 per cent or more.

If it’s a boom­ing mar­ket with lots of investors you will notice prices go up and yields go down. A good example was the 2015 boom in West­ern Sydney.

Note;
Be care­ful to notice what demo­graph­ics are mov­ing and why. A simple call to a prop­erty man­ager can let you know what is hap­pen­ing on the ground.

18.2) Fall­ing vacancy rate

Vacancy rates can be a good marker to watch, it is par­tic­u­larly use­ful to see if there is an over­sup­ply in the market.

Low vacancy rate;
This is a great hot spot indic­ator as it lets you know there is a short­age of rental prop­er­ties in that sub­urb for the amount of renters that want to live there. This is espe­cially good when mixed with a yield of @5 per cent as it could become cheaper to buy than rent, when news gets out and if its a desir­able area you will see it take off. Any­thing below 3 per cent is good as 3 per cent is a flat/balanced market.

High vacancy rate;
This is the one you want to stay away from or find out why. This is nor­mally above 3 per cent. Observe this trend for a time and see if you can pick up on a fall­ing vacancy rate. If so this area is becom­ing a hot spot, espe­cially if it has remained high for a long time, and other indic­at­ors are show­ing green lights. Investors can be attrac­ted because of the change, and the prices start to grow.

Warn­ing;
Con­sist­ently low vacancy rates could mean people in the area don’t want to buy and would rather rent. A good example of this is min­ing towns.

19) Check your town planning

Every prop­erty investor should have a town planner’s con­tact details avail­able. In addi­tion to a con­vey­an­cing report, buy­ers should seek the advice of a town plan­ner to do some back­ground research on any state and local gov­ern­ment changes to plan­ning legis­la­tion, as well as major devel­op­ment and infra­struc­ture pro­jects that may affect the prop­erty and area. This inform­a­tion can be vital and, while easy for a town plan­ner to find, can be eas­ily missed by a conveyancer.

Investor searches will vary between states, but gen­er­ally your search should include both state and local gov­ern­ment web­sites. In New South Wales, the Depart­ment of Plan­ning and Envir­on­ment offers an online map­ping ser­vice where buy­ers can search for a prop­erty and view the vari­ous plan­ning affect­a­tion lay­ers that apply to it.

One of the import­ant lay­ers buy­ers should check in rela­tion to infra­struc­ture is the ‘land reser­va­tion acquis­i­tion’ layer. This layer will identify whether a par­tic­u­lar prop­erty or land nearby has been reserved by the gov­ern­ment for future pub­lic recre­ational land, or for infra­struc­ture includ­ing roads, rail, air­ports and other pub­lic util­it­ies. This review can help identify an area where future infra­struc­ture is planned, which may boost the value of a prop­erty.
Miss­ing this review can leave you with a prop­erty that’s undevelop­able and may be sub­ject to com­puls­ory acquis­i­tion by the gov­ern­ment, if it moves ahead with the pur­pose for which the land is reserved.

An example of this is Sydney’s West­Con­nex pro­ject, which is a motor­way pro­ject that had been dormant for more than 30 years. Now, it is in full motion and reserved prop­er­ties are being acquired to make way for the planned road.

20) When in doubt, start with the locals

Exper­i­enced investors will recom­mend that you visit the local shops and cafes to ask the loc­als what they think about the area you are inter­ested in. You may feel clumsy or embar­rassed, but it is a great way to get an insight that you won’t get any other way. Loc­als will let you know what they really think and they will give you rel­ev­ant inform­a­tion such as the government’s plans to build a major road near the prop­erty you are look­ing at. Sydney’s West­Con­nex pro­ject is an excel­lent example of how a pro­ject will be marked on the title after it is built and devalue the prop­erty, but until then, it is still in the plan­ning stages and you would be none the wiser.

It is recom­men­ded that you jump onto the local coun­cil web­site, or call town plan­ners to verify these find­ings. If you pur­chased a prop­erty that the West­Con­nex is going to affect, you could be forced to register this. At this stage, you should con­tact your law­yer for advice and talk to them about other good searches you could do.

It is also a good idea to door knock the neigh­bour­hood, or talk to owners/renters in the street. This step is invalu­able and you can acquire in-depth inform­a­tion about the area, which will assist with how con­fid­ent you feel about invest­ing there.

Bonus:
You can some­times dis­cover devel­op­ment sites by group­ing sellers together. If you are the first to know, it can give you an advantage.

21) Call your local valu­ation firm

Con­sult­ing with your local valu­ation firm is another option for some hon­est and pro­fes­sional feed­back. The people there are a wealth of know­ledge on the local mar­ket and have no bias, unlike the local real estate agents.

Don’t for­get to ask them if they do reg­u­lar work in that area and if the valu­ations are com­ing in at the con­tract price. If they are not, you could be look­ing at put­ting more cash in the deal than you expec­ted.

22) Google and Google News

You’d be sur­prised what you find by search­ing online for the address, area, sub­urbs, and the words ‘devel­op­ment’ or ‘pro­ject’. This is a great place to start, but just remem­ber that one web­site won’t give you all the answers you need. It’s a pro­cess of work­ing through many sources of inform­a­tion and doing it in a short time­frame, so that you don’t miss out on a prop­erty, or rush in and make a costly mistake.

Some­times in an area you can find local action groups that are try­ing to stop a devel­op­ment or a min­ing site, and this will des­troy prop­erty val­ues. An example of this was in Moss Vale, where a large coal mine was being planned. The area depended on its nat­ural beauty and tour­ism to thrive, and although the coal mine would bring more people to the area, it would also des­troy the look and feel of the town. Even Jimmy Barnes and Nicole Kid­man opposed it, as Nicole Kid­man lives in the area and the coal mine would have gone under her property.

22.1) Cham­bers of Commerce

Cham­bers of Com­merce can be a good source of inform­a­tion as they can let you know what the area needs and what will improve busi­ness. Some of them spon­sor tour­ist inform­a­tion centres and can give you fore­casts of busi­ness growth. If there isn’t one in the area, it could be a sign that there is not a strong busi­ness com­munity there.

Small Busi­ness Boosts Prices

The Eco­nomy of Shop­ping Small Report, released by Amer­ican Express, found that 47 per cent of poten­tial homeown­ers are will­ing to pay extra to pur­chase a prop­erty loc­ated near small businesses.

This study also found Aus­trali­ans will invest, on aver­age, an extra 4.4 per cent of $30,486, to pur­chase a home that is loc­ated near a local shop­ping vil­lage, and each nearby small busi­ness deliv­ers, on aver­age, an extra $164 to the median house price.

The same study found that 60 per cent of Aus­trali­ans believe small busi­nesses boost the stand­ard of liv­ing in their local com­munity, and 62 per cent believe that they improve a community’s aesthetics.

Median house prices in a com­munity that has the aver­age num­ber of small busi­nesses (750) are likely to be 10 per cent higher than one with just 375 small businesses.

22.2) High amount to auctions

Prop­erty auc­tions work best when a prop­erty is in high demand in the area, so if we know a prop­erty is in high demand, and we have a list of buy­ers that we know have been strug­gling to get this type of prop­erty it only makes sense to make them fight for it. This is why we all love to see a good high pres­sure auction.

Well if a whole mar­ket is hot and our buyer demand is up in gen­eral we will auc­tion as many as we can, so if you see a whole mar­ket with a higher than nor­mal amount auc­tions and a clear­ance rate of over 65 per cent you know it’s going to be a fight and a poten­tial rising market.

Note;
This can also bite us agents back, as if you don’t get the auc­tion cam­paign right it can flop, and buy­ers can get a good deal after the prop­erty has passed in.

Always go to actions to get a good feel for the mar­ket and who your com­pet­i­tion is.

If the trend is up on auc­tion num­bers and the auc­tion clear­ance rate is more than 65 per cent, you could be at the start of a rising market.

seven hills real estate agent NSW
Cnr Federal Road Prospect Highway Seven Hills NSW 2147 Australia