With buyer competition still running high despite the slowing market, make sure you avoid the temptation of skipping this important property market research step if you want to succeed as an investor. John Lindeman, researcher and educator with 7 steps 2 Success property market education program explains.
Buying a property is an exciting process. It can also be exceedingly frustrating especially when you keep missing out on your target property.
As such you might be tempted to cut corners to reduce the time you spend on your research. Don’t.
I’ve been involved with the property market as a researcher, commentator and author over fifteen years with professional research with major data providers, as well as forty years of personal housing investment experience.
While I use this acquired expertise and experience to help me identify up and coming property hot spots, there is an essential part of my research that I always do, which I recommend that you should always do, before you make any investment purchase decision.
It’s called “on the ground” research
This essentially means taking a look yourself by driving around or pounding the pavement to see whether the published information about an area is right or wrong.
It may even give you new insights into the investment potential of an area that can’t be obtained any other way.
How to do your own on the ground research quickly and effectively
One of the reasons a lot of buyers skip this part is due to the time it takes to gather the information you need. Therefore, you must be systematic to be able to confirm or refute what the numbers and experts are saying. Here’s how to do it.
1. Drive through the local streets.
Start with your own personal tour of inspection and drive through the local streets to check the general condition of properties and their presentation.
- What is the proportion of “For Sale” signs?
- Are gardens and lawns well maintained?
- Do the streets have skid marks and are there dogs roaming around?
- Are there any gated communities and if so, is this because of obvious social issues in the area or to give the impression of security?
2. Drive down the main street on a Saturday morning and see if all the shops are open.
- Are there busy sidewalk cafes, people shopping?
- Or are half the shops closed, some with ageing and faded “To Let” signs in the windows?
3. Drive down the same street again at 8 pm that evening.
- Are the shops shuttered and few people about?
- Or are cafes and restaurants open and busy, with people wandering freely around?
4. Talk to property managers.
Ask them about:
- The types of renting households,
- The types of properties and locations the renters prefer
- The average length of stay
- Average vacancy periods between lettings.
- Lastly, ask each property manager what the vacancy rate is and how many prospective tenants are on their waiting list. A waiting list of prospective tenants is good but a waiting list of empty properties is terrible.
5. Check the area’s potential for over development.
If you are satisfied that the area ticks all the boxes, your last piece of on the ground research is to check for potential oversupply through over development.
While you might view further development in an area as a good outcome, leading to improved amenities and facilities and generating higher prices, the reality is that high-density unit development or new land or house and land subdivisions can have very different outcomes.
It depends on who these dwellings are marketed to as well as their comparative price and quality compared to existing stock in the area.
New developments marketed to owner/occupiers can lead to the rejuvenation of entire localities if the new stock is substantially superior to existing stock, such as in the refurbishment of older inner suburbs in major cities.
On the other hand, they can cause a degradation of prices if the new stock is inferior, such as loft and studio apartments in inner urban areas, or single bed retirement villas in coastal resorts.
New developments marketed off the plan to investors can lead to oversupplies of rental properties if they are marketed to investors and the rate of new rental stock on the market exceeds the rate of demand.
This may not become apparent where and while rental guarantees are provided by the project marketers, but once the rental oversupply emerges it leads to the potential for both rent and price falls as frustrated and even desperate investors try to sell, often many at the same time.
You need to see whether there is any possibility of an oversupply occurring due to the sheer weight of new stock numbers.
This can easily occur because developers often work without the benefit of reliable predictive demand data for housing. As such, they tend to rely on past performance to select the best areas for new housing and use recent price and rent growth to promote their developments to investors.
3 ways to quickly assess the suburb’s over development risks
Because of the reasons I explained above, you should ensure that your selected suburb is not a candidate for overdevelopment.
You can do this by checking its development potential for land subdivision, house and land sales and medium or high rise unit development using these three research techniques:
As you drive or walk around the suburb, check:
- Are there are large vacant unused land areas?
- Are there roads ending abruptly which are obviously intended to go further in the future?
- Are there vacant shopping strips on main roads with no to let signs or blocks or groups of vacant?
- Are there derelict terraces or houses in an area with medium to high rise units?
These are all signs that developers own the land.
Check a listing site for new or off the plan house or unit listings.
- What often initially appears as one listing on the real estate listing site may reveal a potential development of several hundred units or land subdivision.
- Go to the developer’s or project marketer’s site to see their plans for future development of the project, including the number and type of dwellings proposed and the timeline for both sales and occupation.
Check with the local council for any development applications in the area, the number and type of dwellings proposed and the timeline for both sales and occupation.
If there are significant numbers of new developments underway or proposed in a suburb or locality, you need to check:
- The developer’s and project marketer’s websites to see who they are being marketed to (overseas investors, local investors or owner/occupiers),
- The comparative quality of the new stock compared to existing stock (compare listings for new stock to those for existing stock of similar types of housing)
- The asking price of these dwellings compared to existing stock in the area.
On the ground research is not about selecting a possible property to buy – it’s about evaluating the potential of an area to make that it can deliver the best possible results for you.
John Lindeman is director of innovative housing market analysts, Property Power Partners. For more information visit www.propertypowerpartners.com.au