It's important to understand that the Australian property market is not a single entity, but rather comprised of over 12,000 individual cities and towns, each with their own unique drivers of property price growth. Within each city and town, you need to consider:
Macro Level - These are factors at the city level e.g. market cycle, unemployment rate, supply & demand, population growth and strength of the economy.
Micro Level - These are factors at the suburb level e.g. infrastructure, vacancy rate, affordability and demographics.
Property level - These factors can include the location of the property on the street, proximity to amenities, condition of the house and property features.
Why is this important? It's because each city and town will have its own growth cycle. Let's consider a real-life example.
For the 12 months up to November 2023, prices in Hobart declined by 2.92% while Adelaide increased by 9.74%. That's a 12.66% difference. For example, at the beginning of the 12 months, you held a property worth $500,000. If that property was in Hobart, it would now be worth $485,400, but in Adelaide, it would be $548,700. This equates to a $63,300 difference!
But how do you find high-growth investment properties? Let's take a look.
Discover How to Find High Growth Investment Properties
Supply and Demand
With steady demand and a lack of new supply, property prices will likely appreciate over time. This is the key to price growth over the short to medium term.
Demand refers to the amount of property that potential buyers are willing to purchase at a specific price point. The housing stock available in the market is referred to as supply. The amount that sellers are willing to provide at a given price is known as the quantity supplied.
Generally, property prices are influenced by the changes in demand and supply. When the demand for property exceeds the supply, prices tend to rise.
Identifying the level of demand and supply in a suburb can be done using various property investment data indicators.
Local Factors
The property market can be influenced by the overall performance of the economy. If the economy is growing strong with favourable employment and labour conditions, more Australians can afford to buy properties, which can lead to an increase in property prices. Therefore, it is important to take into account factors such as employment growth, job growth, wage growth, and tenure type. When the economy is doing well, you can expect property prices to rise.
This type of data can be found in government databases like the Australian Bureau of Statistics (ABS).
Many other websites summarise these data sets into easy-to-read graphs and tables:
Population Growth
Population growth is an important indicator of the health of the local economy, job market, affordability and desirability. When the population grows, it puts pressure on the demand side of the property equation. Moreover, population growth can signify the health of the local economy, job market, affordability and desirability.
This type of data can be found in government databases like the Australian Bureau of Statistics (ABS).
The following websites provide easy-to-read graphs summarising population growth data sets, similar to those mentioned above:
Credit Availability
Interest rates and the cost of borrowing are two factors that significantly impact economic growth. When the interest rate goes up, the cost of borrowing money becomes higher, making it more expensive for people to buy property. This results in fewer individuals being able to afford to purchase property. On the other hand, when the interest rate drops, demand increases and so do the prices of properties.
A great example is the historically low-interest rates across the COVID-19 lockdowns and the once-in-a-generation property boom that followed. At the start of 2022, several capital cities, including Melbourne, lifted their lockdown restrictions and reopened state borders, leading to a return to normality in the economy.
However, there was a rise in inflation, prompting the Reserve Bank of Australia (RBA) to increase its cash rate. This resulted in one of the most aggressive rate-rise cycles in decades. The property market was affected almost immediately, with property prices falling, particularly in Sydney. By the end of the year, the national median house price recorded its steepest quarterly fall ever, with an annual fall of 5%.
Let's examine the two graphs below. In the past 15 years, the cash rate reached its highest point of 7.25% in August 2008. However, it has since fallen to a low of 0.10% in November 2020. During this period, property prices rose but started to decline in May 2022, which is when the cash rate began to increase.
Infrastructure
Infrastructure spending can have a significant impact on the growth of property prices. This includes infrastructure improvements, updates to liability and zoning regulations, and other related factors. Such developments can make suburbs more attractive to potential buyers or renters, leading to an increase in demand.
Infrastructure projects such as roads, railways, schools, hospitals, and shops are key drivers of growth in the property market. These projects can be initiated by public or private companies, local councils, or governments.
New infrastructure projects can help revitalize and gentrify urban areas, attracting new generations of people to the region. They also create job opportunities, which are essential for the local economy. This influx of population can place pressure on the demand for housing, resulting in property price growth and higher rents.
For information on major infrastructure projects that have been approved, Infrastructure Australia is a great starting point. Local council websites are also valuable sources of information on upcoming developments, zoning regulations, and infrastructure projects that could affect property values.
Location
It's important to consider the location of a property based on its proximity to the CBD, amenities, public transport, and lifestyle drivers. Basic amenities such as shops, schools, transport and hospitals should be easily accessible. The popularity of school catchment areas can also positively impact property prices. It's advisable to avoid unfavourable locations such as flood zones and busy roads, as they can affect the potential resale of the property.
There are a few websites that can provide you with this information, including:
If you would like to know more about how we can help you build a property portfolio give us a call on 0423 344 286 or email us at hello@mindsetproperty.com.au, or simply connect with our Director Peter Theodorou.
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