My involvement with property as a researcher, commentator and author spans over fifteen year’s professional research, as well as forty years of personal housing investment experience. While this helps me to identify up and coming property hotspots, there is an essential part of my research which I recommend that you should always do before you make an investment purchase decision.
Take your own personal tour of inspection
It’s called “on the ground” research, and it 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. But, you must be systematic to be able to confirm or refute what the numbers and experts are saying.
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?
Look for the right signs and talk to the right people
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? Then drive down the same street again at 8pm that evening – are the shops shuttered and few people about, or are cafes and restaurants open and busy, with people wandering freely around.
Talk to property managers about the types of renting households, the types of properties and locations they prefer, the average length of stay and 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.
Check for overdevelopment potential
If you are satisfied that the area ticks all the boxes, your last piece of on the ground research is to check for overdevelopment potential. 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, single bed retirement villas in coastal resorts and new outer suburban housing developments targeted specifically at first time buyers.
Developments sold to investors carry the biggest risk potential
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 any rental oversupply emerges, it brings with it the potential for both rents and prices to fall 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, which can easily occur because developers often work without the benefit of reliable predictive demand data for housing and so 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.
Use these three research techniques
Because of the above, you should ensure that your selected suburb is not a candidate for overdevelopment by checking its development potential for land subdivision, house and land sales and medium or high rise unit development using these three research techniques:
Firstly, as you drive or walk around the suburb, make a check to see whether there are large vacant unused land areas, roads ending abruptly which are obviously intended to go further in the future, vacant shopping strips on main roads with no to let signs or blocks or groups of vacant, even derelict terraces or houses in an area with medium to high rise units. These are all signs that developers own the land.
Secondly, 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.
Thirdly, 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) and also the asking price of these dwellings compared to existing stock in the area.
On the ground research is not just 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.
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John Lindeman is widely respected as one of Australia's leading property market analysts, authors and commentators.
Visit Lindeman Reports for more information.
He has well over fifteen years’ experience researching the nature and dynamics of the housing market at major data analysts.
John’s monthly column on housing market research featured in Australian Property Investor Magazine for over five years. He is a regular contributor to Your Investment Property Magazine and other property investment publications and e-newsletters such as Kevin Turners Real Estate Talk, Michael Yardney’s Property Update and Alan Kohler’s Eureka Report.
John also authored the landmark books for property investors, Mastering the Australian Housing Market, and Unlocking the Property Market, both published by Wileys.
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Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.
