28/10/2011
Question: Everyone keeps saying that it’s a buyers market at the moment, so investors are in a really good position to negotiate prices. My worry is that in some areas it’s a buyers market for a reason – no one wants to buy there. I don’t want to end up getting a really good price on a property only to find out the area’s not going to see any growth for years and years.
Obviously I’m going to be doing my usual research on the areas that I’m targeting – growth figures, vacancy rates, clearance rates, etc. But are there any tell tale signs to look out for that I might be missing that indicate that an area’s not worth buying into at the moment – even if there are bargains to be had there?
Answer: As the old saying goes, if things seem too good to be true then they probably are. A 'bargain price' is something to be both excited about and wary of. My advice in this situation is to dig as deep with the due diligence as you possibly can.
Whilst the vital signs such as growth rates, vacancy rates and clearance rates are an excellent starting point when choosing a place to invest, they are only part of the puzzle. There are many pockets within Australia right now where if you just used the basic indicators to make an investment decision you’d be purchasing a lemon. When looking at growth potential not only do you have to consider what’s happened in the past and what’s happening in the present, but you also have to consider what’s going to happen in the future. The latter is where most first time investors become unstuck.
The reality is all suburbs are changing, some at a snail’s pace while others will be completely reshaped within a decade. Fundamentally the reason for change is to accommodate the increasing population and to address the needs of the population as it evolves. Add to this the growing need to become environmentally conscientious and you have a rapidly moving canvas upon which suburbs need to be reshaped.
There are subsections of suburbs across Australia that have low vacancy rates, excellent historical growth rates and high clearance rates where values have very little chance of rising due to other factors; such as new infrastructure, zoning changes to allow for higher density living and additional overlays to accommodate for the changing environment. All of these things can have a negative and positive impact on growth potential depending on where and what you buy.
Decisions on how suburbs will be reshaped are made at federal, state and local levels making them very hard for the typical investor to keep track of – and in some cases very hard to predict. Once you’ve selected an area and property type (on your own or with the help of a property strategist), then comes detailed due diligence and professional negotiation and execution.
At the end of the day, there will be a Sales Agent representing the vendor, so I strongly recommend you engage professional representation of reputable buyer’s agents, who will level the playing field for you and help ensure you take advantage of the opportunities and get the best possible outcome.
Question answered by David McMillan, Capital 360 (capital360.com.au)
