Picking A Winner: It’s Never About Luck

Originally published on Linkedin.

A report last week highlighted just how runaway the growth has been in the hottest areas of Australian property. According to the report on the SMH, the price of a house exceeded incomes in over four in five NSW suburbs last year. Six areas saw the house value growth exceed the household income by more than $1 million.

What has happened over the last year is what we might have expected to see over twenty years, packed into such a short time frame. This accelerated speed brings into clearer focus the reasons why we recommend to our clients that they do thorough research before buying a property.

For example, properties in Coogee had an increase in the annual price growth of around $900,000 in 2021. That’s a sizable number, but nonetheless at the lower end of the suburbs that the SMH article tracked. Buying a property in Palm Beach, meanwhile, as the top performer, resulted in an annual price growth of $1.78 million. That’s almost double the growth of the Coogee property.

In other words, the person who buys a property in Palm Beach has done almost twice as well as the person in Coogee. That begs the question: would the person in Coogee have preferred to buy in Palm Beach in hindsight? And what of the people who haven’t benefitted from these gains to anywhere near the same extent – the one in five NSW areas where the price of property did not exceed the household income… do they feel like they’ve purchased a lemon at this point?

Buying for long-term gains

It’s not luck that lands you a property in a high growth area. It’s knowing the market and understanding how the area will develop. Ideally, you’ll want to hold on to your property assets for the long term, so how the community grows around that asset will be a significant factor in what it is eventually worth.

This is why we at Hello Haus highly recommend that people get feet on the ground and a proper understanding of the property and area that they’re looking to buy in. Proximity to services like schools, hospitals, and public transport are all important factors that affect the price and growth potential of the property. Access to recreation and cultural facilities are important too.

Getting a feel for what the local council and developers are looking to do with an area in the medium to long term is also important. Prospective buyers should subscribe to the local news and look carefully at what’s being reported – are there plans to gentrify an area? What are councils spending money on? Are there major developments (such as factories planned or closing) that might result in a different dynamic for the area? It might be impossible to predict 20 years down the track, but if you spend enough time researching an area, you’ll have a better feel as to whether it’s going to be an area on the rise.

This is also why it’s never a good idea to buy property unseen, and “shopping” for a property by simply looking for a house or apartment that matches the budget is setting yourself up for failure. With competition for property still heated across Australia, we do see a lot of activity that verges on the desperate; a need to buy a property at a certain price within a certain area immediately. But if that’s going to mean the property’s value remains flat (or even declines) over time, then it has not been a wise asset purchase.

Housing affordability blues

It is understandable where the sense of panic comes from. As noted in the SMH, the runaway price of property across Australia means that it’s harder than ever to find a place – especially as a first-time buyer. There’s also the fear of missing out factor – once you’re “in” and have a property, it becomes easier to start buying more and become an investor. People know that getting that first foot in the door is the key, and the haste to do so is leading them to make unsound decisions.

There are still options there for people who can’t afford a house right now. Apartments are also growing in value and are an effective investment, but the barrier to entry is lower. Many people are also choosing to buy that first apartment as an investment and rent it, while remaining renters themselves, as a way to subsidise the cost of their investment.

Whatever the strategy, success in this market is all about research. Finding the right property is not just about the right price and right specifications. It’s also about finding the right location and knowing enough to get a good read on the potential future for the property and its area.

For more advice on how to research an area before making a purchase, contact us!