Nine indicators of property success
No . . I’m not referring to beautiful cars, jewellery or fast men – although all those things are great. Property success indicators are pieces of information or data that should influence your property activities. This includes purchasing decisions, renovation and development decisions, as well as the crucial ‘hold’ or ‘sell’ choices.
Developers, in particular, need to use key information to manage their portfolios because their levels of risk are much higher. But what information should you use and, when you have found a good source, how do you use it?
At Crave, we use three main layers of information to identify opportunities – top line (macro environment), suburb view (micro environment), and property specifics. The top line indicators are as follows.
- Political environment – Federal, State and Local government – consider indicators such as planning approval times, zoning regulations, approach to maintenance of roads and community areas, priorities for growth and track record of delivery. For example – the Blue Mountains City Council (NSW) is ‘not fond’ of increasing density, so don’t buy there if you’re thinking about splitting a block of land in the short term. Also consider general legislation and policies – for example, monetary policy, taxation, stamp duty – as slight adjustments can have major market impacts.
- Existing and planned infrastructure – actually another indicator of government attitudes, but infrastructure changes are an indicator of property potential in their own right. Many people understand the impacts (both positive and negative) for new roads, transport, hospitals but other infrastructure can be less visible with significant impacts – such as the roll out of expanded stormwater or NBN. Information is usually available from state authorities or industry information sources.
- Population and state flows – to quote one of Australia’s more successful developers Lyn Shaddock, “show me a rising population and I will show you increased real estate prices”. Makes sense when he puts it like that. Mr Shaddock has also been quoted as saying the reverse is true – ie – decreasing population = downward trending property prices. Reliable sources are the Australian Bureau of Statistics and local Councils.
- Building approvals v demand – thankfully we are starting to see more solid information available to aid government decision makers as well as business and investors. Recent research has pointed to a general undersupply Australia-wide. More suburb specific information is available from Councils and some specialist research such as CoreLogic RP data.
- Economic environment – this category of indicators can be quite diverse with a range of monitors, so choose what works for you. Examples include economic growth, interest rates, employment, inflation, household debt, percentage of investors, mortgage default levels, currency rate, ASX and All Ords.
- Business and consumer confidence – often overlooked, but can be a good leading indicator of market changes and economic health. Also, diversity of business is a key driver of intrinsic / continued property success. The banks track and report this information as do a range of research companies such as Roy Morgan.
- Yields and capital growth v affordability – a key influence in the broader market is lack of returns (yield) from the share market with some commentators noting this as a structural change in the investing market. When considering the property market, rental yield is a key indicator along with the percentage of capital growth (price growth). Affordability is also a major factor in this group of indicators. Sources include the major real estate sites.
- Demographics and design trends – some really exciting changes are emerging at present which will impact market fundamentals. Not surprising are changes relating to our aging population and household size (fewer people per household), but impacts from innovation and technology are being revealed. This includes smart homes and goods, battery storage, and transport innovations all of which may cause a great divide between new and existing property and infrastructure. If you’re a developer, monitor these changes and adapt accordingly.
- Balance of intrinsic over extrinsic factors – indicators in this category can be used to influence the type and duration of your activity in a particular area or market. For example – an area with multiple local employment opportunities and young families may mean you purchase a house and retain it in your portfolio. Alternatively, an area gaining interest due to one industry’s increased workload may mean you buy and old house, build a duplex then sell one or both when the market is at its peak.
Maintenance is important
Many people are good at using the indices listed above during the acquisition process – for example, to decide what suburb to purchase in – but then don’t stay on top of the indicators as they change over time. To ensure your property (whether it is one or more) is working to its optimum level, stay on top of the key property success indicators.
The indicators can also be used to answer the question of ‘the best’ property approach – ie – buy and hold, or buy and sell. The answer can be found by matching your approach and property type with the market. Choose markets with a high level of intrinsic drivers for your ‘buy and hold’ strategy, and markets with high extrinsic factors for ‘buy and sell’ activities.
Top line v specifics
As mentioned above, the indicators outlined here are top line pointers and should be used as the groundwork for taking a closer look at areas and specific property. We have thousands of markets in Australia, and when one market is too hot there are others that are just on the upswing. At Crave, we believe a healthy approach to portfolio building should include developing a strong loan to value ratio (LVR) providing the ability to swoop on opportunities. To identify those opportunities, we look to the next level of indicators – suburb level. Suburb level information is covered in our story Seven keys to suburb magic.
Buy smarter = limitless ways to build lifetime income
Crave Property Advisory is a unique property strategy and buyers agent service. As the only independent and unbiased advisory that can help you use any property strategy Australia-wide, Crave’s services extend to home, investment and commercial property. A highly client focused organization, Crave developed the Modular Investing System (MI System) to provide clients with the ability to use a tailored mix of strategies and efficiently build profitable portfolios that create lifetime income.
Debra Beck-Mewing is the CEO of Crave Property Advisory, and has more than 20 years’ experience in property investing, Australia-wide. She has used a range of strategies to build her property portfolio including renovating, granny flats, sub-division and development. Debra is skilled in identifying development opportunities, and sourcing properties that have multiple uses and multiple exit strategies. She is a Qualified Property Investment Advisor, licensed real estate agent and also holds a Bachelor of Commerce and Master of Business.
Disclaimer – This information is of a general nature only and does not constitute professional advice. We strongly recommend you seek your own professional advice in relation to your particular circumstances.