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Investors overlook important driver
Investors are frequently missing out on researching one of the main drivers of an area, according to Empower Wealth’s Ben Kingsley.
While most investors are aware of searching for the ‘lifestyle’ aspect within a suburb, including the availability of public transport and its distance from conveniences, there’s a science to the numbers that Mr Kingsley said they should be watching more closely.
“A lot of people think that the broader macro factors … are what drives value,” Mr Kingsley told Smart Property Investment.
However, it is the income growth of those living in an area that is the main factor to watch, an element he calls the science behind the “human data”.
“The science behind [value growth] is really around incomes,” he explained. “Income growth leads to affordability, so if you’ve got strong income growth you’ve got stronger borrowing power. So if you’ve got stronger borrowing power, you can afford to pay more.”
In turn, he said, this leads to more people purchasing in the area, driving up the prices.
For investors trying to gauge whether income growth will be the case, he points towards demographics, notably the qualification level of residents in the area.
“If they’re well qualified, the expectation of their income is going to grow,” he said. A starting point for most investors will be the Australian Bureau of Statistics' Census data.
He also points to historical growth trends as another reference point for understanding an area’s potential.