Research

Whether your next purchase is a home or investment, the property you choose can impact your future wealth either positively or negatively.

For all the interest Australians have in property, less than 10% are property investors. Of those, about 70 per cent only own one investment property.

So, while property is a hot topic for many, most people do not leverage that interest to further their understanding of the property market to their advantage.

Property is a long-term purchase and by choosing wisely it can be a vehicle to grow wealth. This is why doing your own research is so important and will guide you to the right property.

The Right Property?

So, what is the “right property”?

There are essential criteria that should be considered when selecting the right property. Understanding these core aspects allows you to identify and eliminate unsuitable properties, helping you concentrate on the ones that meet your needs

Let’s look at those criteria.

Location: Close to amenities, employment hubs, schools and transport. Amenities such as shops, parks, restaurants and healthcare facilities are highly desirable for the convenience and lifestyle they provide. Locations to avoid would be those on busy roads, next to train lines, flood zones, under flight paths, poor infrastructure, etc.
High Land Component: Look for properties where there is a high land component relative to the property. That is, a property where a significant portion of its value is in the land rather than the building. This is known as the “land-to-asset ratio”. It matters because land appreciates while buildings depreciate. So, you want most of the value to be on the appreciating side. To calculate, divide the estimated land value by the total property value. Aim for 50% to 70%.
Limited supply: Land values typically rise when located in areas with limited availability. Acquiring property in a sought-after, well-established suburb of a capital city incurs high costs due to substantial demand. On the other hand, a property on the city’s outskirts, within new developments surrounded by ample land and where future developments are planned, does not face the same supply constraints.
Size and Layout: Functional layout, high ceilings, spacious bedrooms, living spaces, and practical bathrooms.
Property Orientation: You may hear that properties with a north-facing aspect are better. What does this mean? It refers to a property’s primary living areas, such as the living room, kitchen or entertaining spaces, should face north. In Australia, a north-facing orientation maximises sunlight exposure providing natural heating and light. Particularly desirable in winter.
Natural Light: Well-lit interiors with natural light make for more appealing and desirable living spaces. Natural light saves on energy use, is good for overall health and lifts your mood.
Walkability: How convenient, easy and pleasant is it to get around a suburb on foot? The suburb should be pedestrian friendly, with easy to access amenities such as parks, shops, school and transport. Suburbs with high walkability scores are associated with improved health, social connection and reduced air pollution as the need for car travel is reduced.
Owner-Occupier Appeal: The above criteria enhance owner occupier appeal, attracting individuals who plan to use the property as their primary residence. This appeal is crucial because, in many markets, owner-occupiers form the largest segment of buyers. Therefore, properties appealing to this group become more desirable and valuable. Moreover, properties with owner occupier appeal maintain stable pricing and tend to appreciate in value more quickly. Consequently, these properties fetch strong prices during market upswings and retain their value during downturns.

Valuing Property

It may seem that valuing a property with your own research isn’t required given you can look them up on the Domain, Realestate.com and other real estate websites.

However, many of these are computer-generated valuations called automated valuations models (AVMs), and they can often be inaccurate.

They can give wide ranges that are meaningless, or prices that no longer reflect the current market price.

Doing your own price research will help you guage current market conditions and pricing.

It isn’t difficult but just requires consistency and focus.

Once you get familiar with the process and look at enough prices for the specific area in which you are looking to buy, you start to get a good idea of current valuations.

Price Research

In conducting your price research, make sure to keep track of each property you inspect. Use a spreadsheet to record the following:

Property address
Property type
Date first advertised
Initial price guide
Final sale price
How long did it take to sell? (days on market)
How did it sell – private sale, auction (sold prior to auction or passed in)?

Tracking helps you understand the current level of demand and get a feel for the value of similar property types. You will be able to gauge the level of competition, the general mood of buyers and sellers and the direction of the market.

Properties selling quickly at auctions with fierce competition signals sellers are in a strong position. This is referred to as a seller’s market.

Alternatively, properties taking a long time to sell give buyers the advantage who can negotiate a better price. This is referred to as a buyer’s market.

Market Indicators

Use the market indicators below to help you understand the real estate market in a particular area. These help your price research and show how supply and demand is tracking.

This data is readily available in the two major real estate websites Domain and realestate.com. You can also visit property data and research sites such as CoreLogicand SQM.

Comparable Sales: Compare similar properties that have recently sold in the area you wish to buy. Use the filters to narrow down your search. You can filter by location, size, number of bedrooms, toilets, car spaces, style and condition. Focus on the most recent results and don’t go beyond 3 months’ worth of listings as market conditions change and older prices may not reflect current valuations. If market conditions show that prices are rising fast, limit your search to the last 30 days.

Days On Market (DOM): The number of days a property has been listed for sale. Where demand is strong, properties mostly sell in under 30 days. Longer DOM, 60 days and beyond, signals a cooling market. Tracking the change in DOM over time helps assess the general direction of the market.

Auction Clearance Rates: The two major property sites list recent and historic clearance rates. Compare the clearance rates for your city to see how it is trending.

Sales Volumes: Reflects overall activity in the market. High sales volume indicates strong demand, while low volumes suggest buyer reluctance.

Listing Volumes: The number of properties available for sale directly impacts the supply/demand balance. High listings volumes give buyers greater choice and negotiating power.

Vendor Discount: The difference between the initial asking price and the final selling price. It points to the strength or weakness of a property market.

Rental Market Indicators: Rental yields and vacancy rates give insights into whether an area is under or oversupplied with rental properties.

Market Conditions

If you want to dig even deeper into your research, learn to read current market conditions and how they impact property prices.

Market conditions are all the factors that go into buying and selling decisions. These are many and diverse, and while you don’t need to understand them all in detail, know that the interplay of these factors influences the property market.

Supply and Demand: High demand with limited supply causes prices to rise. Conversely, an oversupply combined with little buyer interest cause prices to drop.
Interest Rates: The cost of borrowing directly impacts buyers’ capacity to purchase. When rates are low people can take on more debt to purchase more. High rates dampen buyer enthusiasm.
Inflation: Rising inflation increases property values as the cost of labour and materials rise. But it can also reduce affordability and slow buyer demand if wages don’t keep pace.
Demographic Trends: Population growth and migration boost property demand. An ageing population leads to retirees downsizing, increasing demand for smaller homes, apartments, and villas, creating competition with young buyers entering the market.
Government Policies: Incentives, tax breaks, development rules, and zoning can impact property prices positively and negatively.
Economic Conditions: Strong economic growth leads to high employment rates, increased wages, demand for property and therefore increased prices. Downturns and recessions lead to reduced buying and borrowing power, higher unemployment and decreased demand for housing which can lead to lower property prices.
Local Market Dynamics: There are many different markets, each with its own dynamics and drivers. Gentrification occurs when a higher-income demographic moves in, improving the neighborhood through renovations, which increases the area’s value and attracts more demand, leading to further growth.

These factors illustrate how market conditions do not exist in isolation but interact dynamically, affecting property prices in complex ways.

Now that you know how find the right property (or at least avoid the wrong ones) and how to value them, the search can begin.