Understanding the signs of a healthy property market will help you make the right decisions for your investment portfolio.
There are six key signs of a healthy property market. These six signs don’t always line up; sometimes the market can be moving when four of these factors are cranking up.
You won’t need to pay attention to every sign, but taking any of these signs into consideration will give you an advantage in the property market.
1. Title Stock Sells Quickly
The first key sign is when title stock starts to push out. For example, let’s say I am one developer and “Bob” is another developer who is in the same area.
We’ve gone through our acquisition and planning and run our civil works. We’ve built our roads, and our drainage is in. We’ve got our subtitles and we both have lots of registered, titled blocks ready to sell on the market. This means the market is moving slowly – it’s a buyer’s market.
If we’re selling all our stock before it is registered, before we’ve finished all our works and we haven’t been able to register the land yet, it means there is pressure on the market and it is warming up.
I wouldn’t be discouraged from investing either way but it is good to understand when the market is healthy. If there are whole suburbs sitting there with thousands of lots registered, it is not a good sign.
2. Good News Stories
Another sign is when the media starts to report good news stories. Now, remember that the media usually catches on to a market at least 12 months after the market starts to move.
The media generally only reports two types of stories: the bubble is bursting or the market is hot. You know the media is getting excited when the word ‘bubble’ hits the press, and then we’re excited because the market’s good.
3. If the Economy Is Good, the Market Is Too
The economy underlines any market movement. The four main capital cities move differently. Historically, the property market in Sydney and Melbourne have moved together, Sydney slightly earlier.
These cities are Australia’s business hubs. Sydney is a stronger business hub, so the market usually moves first and Melbourne follows.
The two biggest factors in the property market in Perth and Brisbane are mining and tourism; if both of those industries are cranking, then the economy is good.
If mining or tourism are flat, depending which one and how flat, it can mean the market will be that way for a while.
4. Developer and Government Incentives Are Reduced
If the market is hot, the government and developers reduce their incentives. An example is the first home buyer incentives which were around a few years ago.
The government gave people money to get them into the market because building is a massive industry.
If the building industry is moving, washing machines, benches and sinks are selling, people are putting trees in, and the whole thing revolves around that activity coming out of the building sector.
5. A Rise in Rental Prices
Rising rents are another sign of a healthy market because this obviously means there’s an increase in demand for property. If rents are going up, there is a shortage of properties on the market.
Property is valued based on the rental income it can generate. If rental vacancy rises, the property won’t be earning an income, which means you would have to lower your rent, and earn less.
This in turn devalues your property, so the rental prices are an important indicator for investors.
6. Multiple Offers Kicking the Market Off
The final sign is when there are multiple offers prior to a property listing. At the far end of this extreme, are auctions where you see hundreds of people in the street.
This means the house and the area is generating a lot of interest. If that’s the case, it can only be a good sign for the potential of the investment property.
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