With auction volumes hitting highs of over 2,000 for the year and clearance rates in excess of 77%, how do you know if a suburb is about to boom?
Any smart investor will know that you make your money when you buy, not when you sell. In property, the key is to buy into a city or suburb that is about to boom. Get in before prices rise and enjoy the wealth that comes from the growth.
Unfortunately, it’s a lot easier said than done. If it was simple, everyone would be making a fortune from property. It can be very hard to tell when a suburb is about to boom, but there are a couple of key indicators that can give you some hints. Here are the 8 things you should look out for.
Lower vacancy rates
A vacancy rate is the percentage of properties that are vacant within a particular market (for example, a suburb). Low vacancy means that there is either a shortage of rental accommodation on the market or the number of tenants has increased. In general, the market is balanced when the vacancy rate sits at around 3%. When the rate is below 3%, there is a shortage of rental properties for the tenant pool available. Above 3% indicates there is a surplus.
A falling vacancy rate usually means that market is heating up. This causes increases in rent as investors will take advantage of the higher demand relative to the number of properties in that suburb or area. An easy way to find out is to use SQM Research’s postcode checker here. You can see the historic vacancy rate figures, the longer term average and what it’s currently sitting at.
Because renters are flexible and more mobile than owner-occupiers, they will often be the first to move to popular suburbs. The increase in demand will push rents up which means yield growth.
In the below example the rental yield is 4.55%, the property purchase price is $400,000 and the weekly rent is $350.
- (350 x 52) / 400,000 x 100 = 4.55%
If you want to determine a more accurate yield or the net rental yield, which is the same yield after costs are taken into consideration, you can use this formula:
- Net rental yield = (Annual rental income – Annual expenses) / (Total property costs) x 100
There are lots of tools to give you a broad suburb view on average rental yields, including RealEstate.com.au. It gives a fairly broad calculation using the median advertised rental figure, calculated on property sales over the past 12 months. It won’t be accurate to a specific property type, but it will help you narrow down your suburb criteria. You can also look at this great tool at SuburbView to understand the average price breakdown by property type, the number of bedrooms and the average rental yield.
Fewer days on market
This one is pretty straight forward. If demand increases or supply decreases (or both), buyers will be quick to purchase property because there is more competition. When demand exceeds supply, the average days on market will, therefore, be lower because there are more prospective buyers per property.
Again, a quick way of checking this is to use RealEstate.com.au. You can look at a metric they call Market Demand, which is calculated by the number of visits to realestate.com.au/buy per listing per month. The assumption is that more people viewing the property means there is more demand, compared to when there are fewer people viewing the property there is, therefore, less demand.
You can view the Average Days on Market using a suburb report from HomeSales.com.au as well. At the top of the suburb profile, it shows the number of days that people have the property listed on the market. In the case of Brisbane LGA (postcode 4000), units in Brisbane take an average of 77 days to sell meaning they can be on the market much longer than suburbs like Paddington (postcode 4064) which has an average of 63 days on the market for units and only 35 days for houses, showing higher demand.
Increasing number of auctions
Auctions historically are more successful when demand is strong. When there’s lots of demand, buyers will be more willing to outbid each other which results in higher prices for the vendor. Therefore, if there are more auctions than usual in a particular suburb, it could mean that market is getting hot.
It is worth remembering that auction clearance rates are generally more applicable in New South Wales, Victoria, ACT and South Australia as their purchase contracts are less flexible for buyers meaning more properties are sold at auction compared to private treaty (a non-auction sale). Whereas in Queensland, Western Australia and Tasmania, buyers tend to prefer private treaty sales as they can sign contracts subject to finance and other conditions.
Less vendor discounting
Discounting refers to a situation where the final sale price is lower than the asking or listing price of a property. At times when supply exceeds demand, buyers have more bargaining power because there are lots of options on the market for them to choose from, so vendors may have to accept a lower price. On the other hand, when supply is scarce, buyers need to compete on price so vendors are much less likely to drop the price of their property.
Similar to days on market, HomeSales.com.au shows the Average Vendor Discounting, meaning how much the price is reduced from the initial value to the final negotiated price. Practically, this means vendors might be more willing to negotiate on price in Paddington (postcode 4064) where average vendor discounting is approximately 5% compared to Albany Creek (postcode 4035) which interestingly has vendor discount of -1.43%. For example, in Albany Creek, vendors might list the property for $400,000 and sell for $410,000, showing there is a higher demand in that market.
An increase in development plans and public transport is a sign that the government is expecting a population boost. Check your local council website and community news to keep track of any announcements about public amenity and infrastructure. You can also check some smaller websites such as Brisbane Development or The Urban Developer to keep up to date with recently submitted plans and works.
Let someone else do the research for you. If a suburb has new developments or redevelopments planned, it’s an indication that a developer believes the suburb is likely to boom soon. Again, you can refer to Brisbane Developer or The Urban Developer to keep in touch with upcoming projects. Additionally, if you want to get an idea of your local zoning or see if your neighbour is planning to build a new development, you can check out your local council website (PDOnline in Brisbane). This will show any development approvals, plans that have been submitted or developments that have been approved on specific streets.
Less stock on the market
If you notice that there are fewer properties on the market in your suburb than usual, this could be because no one is willing to let go of their homes, knowing that they have good capital growth and/or high yields. There are a few ways to investigate this, but the easiest ways are to look at RealEstate.com.au to determine the number of current listings in an area, to speak with local agents or research specific suburbs here.
But how do I know if a suburb is about to boom?
All of these factors will ultimately influence if a suburb is about to take off. To find these places you should work with an expert who knows the local market and can help you mitigate all of these factors to find the perfect property. Red & Co Advisors understand the local market and can help you build a property portfolio. If you would like to talk to our team for a free consultation, contact Jayden Vecchio on 0421 874 357 or get in touch here.