Spotting a hotspot: finding value in a recovering market

Recovering property markets offer fantastic opportunities for investors to secure great property deals whilst prices are low, affordability levels are high and there are strong prospects of capital growth. However, trying to identify the next area set to benefit from improving conditions in a transitioning market can be a tricky exercise. Recovering markets move quickly and smaller sub-sections within a larger market often recover at different rates, making opportunities hard to spot and easy to miss.

So, how can you identify the next growth area in a fast-paced recovering market?

View market factors holistically, not in isolation

Property markets are rarely, if ever, influenced by lone factors; there are always multiple influences at play, and this is particularly true for a market in recovery phase. When conducting research within a changing market, it is crucial to consider the broader picture to help develop an understanding of the true investment potential of a given area.

Demand is an important and popular indicator that investors look for when shortlisting areas for potential investment. Factors that can see demand rise include new infrastructure projects (e.g. public transport or schools) and public amenity such as parklands, recreation facilities and cafes. However, demand isn’t the only influencing factor determining the movement of property values. While a suburb may appear to meet all the criteria related to demand, it could still prove a poor investment choice if supply levels aren’t taken into consideration. For instance, if that suburb is facing an upcoming influx of supply, perhaps due to a nearby development or high density rezoning, this new stock could reduce competition for properties in the area, forcing house prices to remain stagnant or even fall. This highlights the importance of viewing pricing factors together and not singling out one individual factor as the basis for your decision.

Narrow the focus of your research

Not all suburbs and properties are going to perform equally in a recovering market. Supply and demand factors vary considerably between suburbs, and even streets, within a single area, impacting the rate at which different segments will recover and grow. This is often where headline figures can become misleading, with overall movements in price growth (both upwards and downwards) not necessarily reflecting the state of the market across all suburbs.

As an example, average days on market in Greater Perth averaged 50 days in the 12 months to June 2020. However, when segmented, this was significantly lower in a number of suburbs, with Kingsley, Beldon and Mount Hawthorn posting average days on market of 20, 20 and 24 respectively.

Look beyond the current growth area

As property prices begin to rise in a recovering market, certain suburbs will often begin to experience heightened demand and increasing competition from buyers as they look to leverage growth in these “hotter” market segments. As investors, these areas may appear to represent great value, however, they don’t necessarily always present the best buy. As prices in a property market are rising, certain areas may see spikes in demand which can quickly heat up competition and lead to hyperinflation of prices. When the hype subsides and prices correct themselves, values may remain flat for prolonged periods of time, or in the worst case, even drop. The good news is that neighbouring suburbs often share similar factors and growth drivers with areas that have already witnessed growth. Barring underlying problems with the suburb that may limit growth, these neighbouring areas can be well-positioned to experience the next wave of recovery and growth. Astute buyers also understand the importance of leading indicators like lower stock on market, properties selling more quickly and higher online views in determining a suburb’s future growth potential.

The value of local expertise

Researching investment opportunities and correctly analysing market data is a time-consuming activity that often requires strong local area knowledge and market experience. In a fast-paced market, keeping up with research can prove to be a difficult task and the consequences of purchasing a bad investment property can significantly impact long-term financial plans. Engaging a local expert with strong area knowledge can prove a critical advantage during the property research and acquisition process, helping investors navigate and identify opportunities as conditions heat up.

How can Momentum Wealth help?

Momentum Wealth’s buyer’s agents have a proven track record of outperforming the Perth market, and have collectively purchased over 1,200 properties on behalf of clients. Using their local area expertise, knowledge of local government planning policies and in-depth understanding of the key drivers that influence property values, our buyer’s agents can assist local and interstate buyers in identifying the highest potential investment opportunities while reducing key risks throughout the purchase and due diligence process.

Momentum Wealth is a multi-award winning, WA-based property investment consultancy dedicated to assisting buyers in the financing, acquisition and management of their investment property portfolio. To speak to their Perth buyer’s agents about opportunities in the Perth market, contact them here.

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