Selection principles
Property Selection tips for best investment performance
In recent months there has been a marked resurgence of interest in the residential property market.
Following a relatively long period of infatuation with the stock market, many investors are revisiting property’s key investment principles, and looking for selection pointers.
While it’s true that historically most properties perform well over time[1], there is no question that an understanding of contemporary market issues should result in improved property selection criteria- and hence investment performance.
The first and obvious issue is to invest in the geographic markets that are cyclically positioned for early growth. This probably rules out Perth, Sydney[2] and Darwin and puts a question mark on Melbourne.
The second and equally important issue is to look for strong economic and employment performance – which certainly rules out Sydney and Adelaide[3] in the short to medium term.
The third issue is to look at the strength and sustainability of population growth. Perth’s short term population growth rate is good, but in absolute numbers it is small.[4] Sydney’s interstate migration loss remains high, with a future question mark about renewed migration loss due to housing affordability. And while Melbourne CBD growth is quite strong, Queensland is forecast to overtake Victoria’s population in a bit over 20 years. [5]
Current market analysts all point to an undervalued Queensland residential property market- which coincidentally is enjoying Australia’s strongest economic performance as well as total population growth. With a residential property yield of around 4-5 % p.a. gross – the highest generally in Australia.
Contemporary Issues
Major changes are taking place in Australia and other Western countries that are having significant impact on the nature of future housing demand.
Household sizes are falling (to below 2 persons in CBD locations)
More singles, fewer children, more separations and a record number of baby boomers living longer.
Increasingly we are looking to a better located, smaller, more sophisticated lifestyle type housing product- offering convenience, security and lifestyle.
Affordability
Affordability appears to be an inevitable and universal problem- impacting on market demand.
Technology advances and employment options
More employment options mean that more people can work from home, and job mobility and shorter employment tenure is increasingly common.
Community hub changes
Work pressure, travel time and living away from family are creating an increasing dependence on café precincts and on site leisure amenities for a sense of community interaction.
Seachange
A desire to quit the urbane and revisit the simplicity and invigoration of water related non CBD lifestyle, is influencing whole sections of community not tied to typical suburban living.
An investment blueprint
While all properties should perform over time, the key is in selecting for the likelihood of demand exceeding supply:-
- Economic growth
- Population growth
- Employment growth
- Undervalue
- Properties that meet the lifestyle security and affordability issues of a changing market
- Strong rental yield
- Water related
- Affordable to the mainstream market
In addressing these central issues, the likelihood is strong that you should enjoy early to medium term capital growth, with little obvious downside risk.
If you’d like to learn more, gain insight into the latest property market research and analysis, and have access to a unique waterfront property investment opportunity, book your place at our Free Property Investment Seminar to be held in Sydney on May 16. Seats are strictly limited, so call 1800 098 908 or click here for details and to reserve your place.
David Miller is Managing Director of Investment Property Solutions (IPS). His 25 year industry background includes senior line management roles with Australia’s largest residential construction companies, investment and financial education, financial planning and property investment consultancy. IPS offers an objective and comprehensive support to property investors.
[1] ABS REIA BIS Shrapnel data- most markets average 8-9 % p.a. compounded growth over 10-12 years.
[2] Sydney & Perth both forecast for a decline in pricing – BIS Shrapnel Building Industry Prospects March 2007
[3] WA & QLD economies performing at around 7% GDP – NSW currently around 1%
[4] WA population growth 40,000 for 2006- versus QLD at 77,000 - BIS Shrapnel Building Industry Prospects March 2007
[5] Australian Financial Review 20/4/07- QLD overtaking Vic population by 2031
