In the latest issue of Terry Ryders Hotspotting Ryder Report it is stressed the importance of planning and receiving advice from professionals who have the expertise to analyse all aspects of the market which would affect a chosen investment property. As many investors struggle to make it past the hurdle of their first investment property (73% of investors), it can be clear that they lack a solid strategic plan and fail to set goals for themselves which can slow down their progress. Taking a look at some of the issues raised in June’s Ryder report we can make the connection between poor research and how it can hinder progress when purchasing their first or even second investment property.
When examining capital growth rates it many reports or median releases tend to lump many property markets together such as capital city markets, state markets or even nationally. The reality is that there are thousands of various property markets across the country all with different factors affecting everything from the yields, rental growth rates, capital growth and vacancy rates. When undertaking research for a particular investment property care must be taken to analyse all these factors and how they are affecting that particular property. Many inexperienced investors may take capital market reports at face value and see that for example one might look at Sydney and the incredible median growth achieve over the past 12 months (approx. 15%) and decide that an investment within 20 kilometres of the city will take advantage of this, however not all suburbs are following the trend with many on the North Shore and Northern Beaches falling short of the average growth such as the high end market in the suburb of Burraneer NSW achieving a mere 3.6% in 2 years.
While Brisbane was a much discussed market in early 2014 as many analysts predicted strong growth over the year, taking the capital market at face value we can see Brisbane has only grown 2.6% since June 2015 which is a pretty trivial result however looking into the hotspots contained within we see a very different story. Analysing markets which have high growth potential such as those with heavy infrastructure investment, tight rental supply or are undervalued in comparison to the surrounding suburbs can find some hidden gems. Suburbs analysed by Terry Ryder from Hotspotting.com located on the north side have yielded some results which have even outpaced the Sydney average. The highest performer is the northern hub of Chermside at 18%, followed by Nudgee and Wavell Heights at 17% and 14% respectively as well as Stafford and Taigum at 12% and 13%.
The same goes for vacancy rates in particular areas, it is important to note though hardly ever discussed is the differences in vacancy rates between houses, townhouses and units. Different dwelling types are suited to different households, obviously a family of four or five would be far more suited to a house than a 3 bedroom apartment and very few single person households would opt for a five bedroom home. Therefore it is always imperative to take note of the demographics of the area before deciding what investment to pursue as well as taking note the supply of that type of dwelling and the associated vacancy rates. All too often seen in many high traffic shopping centres or public areas is a fantastic display stall set up for the purpose of marketing a new off the plan high rise development somewhere in the inner city areas of Brisbane. While these unit developments look impressive and may make attractive investments the truth is the Brisbane apartment market is suffering from massive over supply. Most often directed at overseas and interstate investors who know very little about the current market conditions and aren’t sure where to start researching assuming that any unit development close to the city centre is bound to grow in capital value and have a tight rental market. However the truth is that the pace at which is these developments are popping up is far outstripping the demand to live in high rises causing vacancy rates higher than the informed investor would be comfortable with, stagnant rental growth rates and sliding capital values.
The problem is not getting any better with 2,880 new units to be built in 2014-15 and a further 3,610 next year and an even greater 4,040 for the following year. A majority of these units are sold to investors with only 10% being owner occupied. Interstate investors are the majority of purchasers purchasing over half of units sold at 54% followed by local owner occupiers and investors at 32% and foreign investors making up 14%. Predictably these marketers will never inform you of the fact the unit market is over saturated with vacancy rates over 3%, signalling an oversupply. In fact many are claiming that there is a shortage of apartment stock and the city is not building enough. The current problem areas in terms of vacancy rates are Ascot/ Hamilton, after the development of the Portside Wharf complex and Spring Hill and the CBD with 4.6% vacancy rates. This doesn’t mean that you should be buying in these areas, but it does suggest the type of property becomes critical for your next investment. These numbers are in slight contracts to the outer reaches of the Brisbane City Council which has an average vacancy rate of 1.5% and 2%. With the city average being around 3% up from 2.5% a year ago. Apartments and units comprise of a majority of the rental stock with a 45% share, followed by houses at 38% and townhouses at 11%.
These often overlooked analytics can greatly determine the path an investor takes to building a solid and reliable property portfolio and therefore emphasise the importance of taking tailored property advice from professionals who are well informed of the local market. While many investors choose property as a safety net for retirement by purchasing one property in a set and forget scenario, the most successful and wealthy investors capitalize on the benefits of research and advice combined with their own education to make the most informed decision and maximise their results.