When purchasing a home or investment property, you will want to know that the value of said home or property will increase over time. Homes and investment properties in growth suburbs increase in value exponentially. However, how do you spot a growth suburb before experts?
To spot growth suburbs before experts, an investor should look for indicators of growth like the average days on the market, the number of vacancies, new amenities available, and the demographic of the residents. This can help one assess the current and future worth of a property.
To learn more about growth suburbs, keep reading.
How to Identify a Growth Suburb
The first thing that an investor should do to identify a growth suburb is to look into the real estate data of an area. This data can be found in a variety of places that are available to the public. The Australian Bureau of Statistics, The Real Estate Institute of Victoria, The Real Estate Institute of Tasmania, Realestate.com.au, and Residex are all incredibly helpful. These sources will show previous property values, the number of properties available in the area, and the number of days properties have been on the market.
Now that you have collected data in a variety of areas, it is vital that you sort through it and decide what is important. The most important pieces of data include the number of days a property has been on the market, if industrial changes are occurring in the area, what amenities and schools are available nearby, nearby businesses, transportation options, and the demographics of the people in the area.
The number of days a property has been on the market can be important because it shows how much desire for properties in the area people have. If homes are not selling for months, it shows that people are not interested in them, and the property likely isn't in a growth suburb. If homes are selling within 21-30 days, that is considered a healthy and happy medium. If the number of days on the market is below 20 days, that is a prime indicator that the demand for a property is rising.
Industrial changes may not be as easy a figure to find, but simply driving through an area or looking at a neighborhood can help an investor see the changes occurring. When industrial changes occur, property values will increase because the homes will attract new residents who usually have more money to spend.
The number of businesses available within a reasonable distance from a suburb can also help make properties more valuable. If there are many different options for jobs, there will be a flow of people willing to live in the area. Transportation options also attract people because they are able to travel easily. This can help attract younger people who do not have the means to own a car or those who value public transportation.
Ultimately, a potential investor should be able to analyze the numbers and data to be able to identify potential good potential growth suburb investments. After analyzing the numbers and data, it would be smart to go to the areas and get a feel for the neighborhood. This can also be a way to talk to residents about the area and learn important information that might not be tracked like resident relationships, crime levels, renovations, and even future vacancies.
How to Predict Property Value Increase
This is similar to predicting property growth in many ways. Property value will increase when the demand for a home or property in a location increases but the availability is low. This means that the number of properties available in comparison to the number of vacancies and previous rent price trends is vital information to know.
The number of properties available in comparison to the number of vacancies is an example of supply and demand. If there are few to no vacancies, there is a high likelihood that the area is sought after. If the area is sought after, there is a high chance that the few options left can ask for a higher rent than in the past. This can make the value of a property increase.
How to Tell if a Town is Growing
Town growth is probably the easiest to understand and predict because the area is large, so it is easy to see the beginning of the growth. The best measurements of growth are the number of businesses, what amenities and schools are available, what kinds of transportation are available, industrial changes, and the overall town demographics. These are the best pieces of data to look at because they hint that amenities that attract people to move to and live in an area will soon be built or are already there.
The demographic is probably the first thing to change when a town grows. If a demographic starts to become younger, the people are more likely to bring new ideas to the area. These ideas can enhance growth. It is also expected that younger people will bring families with them and improve the economic and social outlooks of the town. This can ultimately make a town grow and be a place people want to live in.
How to Identify Where Growth is Originating From
The easiest way to find where growth is originating from is to look at the data for each town and narrow it down little by little.
This can be as easy as picking a big city like Adelaide and looking into data taken from surrounding suburbs. Once you gather the important pieces of data about surrounding areas, it becomes easier to identify which areas are thriving and growing or will grow soon.
Other things that people can look into include different amenities and their proximity to different suburbs. Suburbs that are closer to different amenities might grow at a faster rate than their neighbors just because of that factor.
Once the data and geography have been taken into account, the areas of growth and origin spots are easier to identify.
How to Decide if a Growth Suburb is Worth Investing in
Once you have decided that an area is growing, the next step is to decide whether or not it is worth investing in. The first thing to consider is your purpose in becoming an investor or buying a property. If you want to purchase a property to rent it out to others, it is best to buy a property that is in an area that will meet the needs of residents on a long-term basis. Some of these things can include proximity to schools, work, a doctor, grocery stores, and entertainment opportunities.
Meeting a resident's long-term needs might not be as important when you are wanting to invest in a rental property that functions like an Airbnb. People who are renting an Airbnb will likely not need to be close to a school. doctor, or grocery store because they are visiting an area for a short period of time. However, they will want to be close to different attractions like restaurants, museums, and scenery.
Another thing to consider is whether the initial investment cost will eventually lead to a payout later on. With long-term renting options, the investor is much more likely to make a profit because they can guarantee a steady income from the property. This means a person can reasonably spend more initially because they know that they will make up the cost eventually.
Yet, properties intended to be rented for shorter periods of time can inherently be riskier. A person can accidentally invest a large amount of money in a property that only gets renters every couple of months. This can lead to a lack of profit and might even cause you to lose money on your investment.
Once you have decided what your investment purpose is, it is a lot easier to decide whether a property is worth the initial cost.
How to Select a Rental Property to Invest in
Rental properties are generally good to invest in when the vacancy rate in the area you are looking at is lower than 1%. This means that there is a huge lack of properties to rent and that the demand for such spaces is high. There are a few factors that may mean that the vacancy rate will stay low in the future, including amenities and general area quality, landlocked areas, and areas within large cities such as Sydney and Melbourne.
Of course, checking the trends in vacancy rates within the past few years is a good indicator of whether or not you should purchase a rental property. If rates have been decreasing steadily within the past 10 years, the market may be too hot, and you may end up overspending. But if the rates have only been moderate within the past 10 years and are just now starting to decrease, a rental property may be a good investment.
What Makes a Suburb Increase in Value?
There are a few good indicators that an Australian suburb will increase in value, many of which are based on statistics that you can find easily online.
The first of these indicators is DSR or the demand-to-supply ratio in a given area. A high DSR score means that an area is more of a seller's market: prices will be high, and oftentimes people may pay above the asking price for homes in the area.
A lower DSR indicates a buyer's market in which housing prices are very low and a buyer will have more negotiating power. In general, a good DSR score will be anywhere from 55 to 85. This indicates that an area is not excessively expensive at the moment, but the demand is still high enough that the area will likely see a lot of growth in the near future.
A DSR on the lower end of the spectrum may mark a suburb that will experience good long-term growth, while a DSR on the higher end of the spectrum may indicate a good potential for short and medium-term growth. Of course, there is always the risk that the DSR for a suburb will become lower if the area is simply experiencing a short-term demand increase or if a DSR is on the lower end but it is not increasing. Thus, it is important to consider long-term DSR fluctuations over time.
Good statistics to consider looking at in a suburb include the 40, 30, 10, 3, and 1-year growth rates for the area. Generally, you want to find an area that has done well in previous decades but has done not as well within the past 10 years. However, the area should have increased in value slightly within the past 3 years. If the area has increased in value in the past year, the area is desirable but undervalued, which is a key type of suburb to find if you want to maximize your return on investment. Spotting undervalued suburbs is the key to long-term capital growth.
Vacancy rates are also a great predicting factor in whether or not a suburb will increase in value. A vacancy rate of less than 2% means that the demand for homes is high and likely will remain high for a long time. A vacancy rate of 1% or less is even better.
Owner vs. renter demographics is another key indicator. A 70:30 or higher ratio of owners to buyers indicates that the inhabitants of a particular suburb want to become homeowners, which will drive up the price in the long term as the area grows. This is an especially good sign if the suburb is landlocked, is in a large city, and if the suburb itself is a nice area.
A suburb with high average household incomes will also likely grow. Those with higher household incomes tend to reinvest in their homes and gardens, making them look nicer. This drives up home prices in the surrounding area.
Gentrification is one of the most important market factors that can make a suburb grow in value. Identifying an area that is being gentrified takes some keen observational skills but can lead to some great turnaround. A suburb undergoing gentrification will often have shabby homes next to newly rebuilt or renovated ones. It will also often have younger families (especially young professionals) moving into the area in increasing numbers.
Thus, an area with high amounts of reinvestment, job growth, small business, and an increasingly young age demographic will grow significantly in years to come. These areas may just become blue-chip neighborhoods within the next 10, 20, or 30 years, which is great news for housing prices.
Good school districts also create long-term growth. People want their children to get excellent educations, which means young families will want to buy into a suburb if it has good school districts.
Similarly, infrastructure projects can also greatly increase housing prices within a suburb. Train lines can greatly boost prices. The key time to buy into an area that is going to get a big upgrade in terms of infrastructure is before the project is begun. This ensures that you will get to benefit from the huge value boost that often accompanies these projects, especially in areas that receive a lot more traffic and business investment afterward.
Of course, all of these statistics should be considered when looking for a suburb that will grow and expand in the coming years. When used in conjunction, these can be hugely helpful indicators for which areas will or won't provide a good long-term return on investment (ROI).
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