Who’s research do you believe?

If you want to know the growth rate, get friendly with a local agent then ask them for a list of the last 5 years sales for the area. Then analyse these sales figures. Do it by category ie Units 1 bed, 2 bed, 3 bed units, then do similar with houses/villas/duplexes and compare year on year sales. If you are really serious, compare the properties ie similar age/new.

Each outfit presents its own data that comes from disparate data bases. Differences are accounted for in methodology, time frame, data sets, correction methods etc. Stats cannot predict the future so actual figures are worthless. The value is defining trends from the data. So while different publishers may disagree on actual figures or their accuracy is questionable the trends they reveal are the value in the information if they support each other.

You need two at least to confirm the data, assumptions used etc corroborate each other. There is very little time taken in collecting and assessing this sort of industry stats so you should make use of what's available. 

Minimal stats amongst other things might lead you to prospects with potential. You need to use everything available to you when making a final analysis. You learn over time what is reliable and what is not. Experience will also help reduce the amount of information you need to filter in order to arrive at a decision. 

Hi Juichi,

Its a pretty big topic the topic of property investment area research and one where you will have many people tell you their method/data is superior to someone else's. Basically I have done a thesis on property research at Uni, invested in many properties of my own, built and developed around $50 million worth or high rise unit apartments and renovated units too. It wasn't until I started to do the developments that I realized how important focused research of an area actually was. Basically in easy to understand terms, you need a demand/supply imbalance in the market in order for the area to grow in value. 

Property research is therefore broken up into 2 categories being statistical and fundamental. Because there are 15,000 suburbs around Australia, I needed to come up with a rating system to pinpoint the suburbs that have a demand/supply imbalance in them now and as such have the best chance of increasing in value well over the state average and in turn give you the ability to purchase more property and increase your wealth at a much quicker rate than most investors in the market. Obviously property investment is much better if you can time the market more efficiently rather than sit and wait for 5 years for any growth to occur, so this helps do that for us and our clients.

Our rating system rates each suburb out of 500 and each category is weighted according to the importance it has in the demand/supply balance. A brief outline of what they are is as follows:

1. Number of Days a house unit in the suburb is on the market – The lower the better, this shows a higher demand for that type of dwelling in the area. If the number of days have been decreasing over the past 6 months this is even better

2. % of vendor discounting – The lower this number the better as it shows that buyers have less choice and less ability to negotiate. It also indicates a suburb could be in high demand

3. Auction Clearance Rate – The higher the better. Higher numbers indicate a higher demand

4. Rental Yield – The higher the better as it indicates a higher demand in the area from renters who are prepared to pay more to live there.

5. % of Stock on Market – The lower this number is the more demand a suburb has and the higher the chance of getting a premium for the property is

6. Online Search Interest – Takes the total number of online searches in an area and divide this by the number of properties available for sale in an area. The higher this number is, the more potential demand the suburb has and the lower the supply in the market is to fulfil the demand

7. Rental Vacancy Rate – The lower this % the better it is for investors and the more demand a suburb has

8. Proportion of Renters to Owners – The lower this number the better a suburbs perception is. Owners have a tendency to look after their properties a little better than renters and therefore lift the perception of an area’s quality

If these metrics combined give us a rating that indicates the demand is exceeding supply (market is imbalanced), then we move onto the fundamental searches to validate the statistical data.

Fundamental Indicators

1. Proximity to Water/Ocean

2. Views of Hills/Mountains

3. Transport Infrastructure – Recently announced, in progress or to be shortly started that will reduce commute times to the CBD and increase demand for a suburb

4. The ripple effect of close suburb neighbours. If suburbs within close proximity have grown substantially recently, the chances are that the subject suburb will grow quickly in order to maintain a pricing balance between the growth suburb and the subject suburb

5. Project Booms – Are there any large projects nearby that will create a spike in demand (Mines, desalinisation plants, shipping ports, pipelines)

6. Ugly Ducklings – Has the suburb been branded rough or ugly in the past and the only problem with the suburb is its reputation? Are private buyers updating their properties in the area? Are developers buying up new land and building new apartments? Are businesses and trendy cafes entering the area now?

7. Urban Renewal / Government Works – Has the government put forward a proposal to improve the appeal of an area (Parks, malls, entertainment, shopping precincts)

8. Lifestyle Features – Are there any lifestyle amenities nearby like golf courses, large entertainment precincts, tourist attractions

If those 2 searches reveal that the suburb is a potential hotspot, then we drill down to find the best streets within the suburb and then find developments within close proximity to those to give the best chance of fast capital gains.

The data houses like Residex, RP Data and SQM Research provide data that fluctuates greatly, but is best used as a potential source to gather suburb shortlists for investigation from. The issue with these data providers is that they don't provide past issues of recommendations to gauge performance by. The trend of a suburb of interest is of particular value when deciding whether a suburb is worth fundamentally investigating. For example, it is no good going off to investigate a suburb that has been growing at 15%p.a. for the past 5 years. Like everything in life, when one area gets too expensive, people will compromise on the next best cheaper alternative until the prices of surrounding less desirable suburbs catch up.

There is so much more that could be written on the topic, but those items will give you a basic template of what you can use to instigate your research model for superior returns of investment properties.