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Reproduced with permission.
Every individual property is different. Most media commentary suggests or assumes that the property market is one homogenous market place where every property ‘product’ performs the same way financially over time. The reality is that every property is unique and will provide different returns on capital growth and rental income into the future.
Understanding the micro-economics of property is vital, especially when marketing and media information predominantly covers the macro picture. Properties in the same city, suburb, street and apartment block can be completely different and, therefore, provide varying investment returns. Keeping this top-of-mind will carry you a long way towards making a better property investment decision and help to shut out irrelevant information.
What property attributes are linked to outperformance? How do you spot the micro determinants for a good property ‘product’ investment? Even if you know what they are, it can be difficult to ensure you tick all the boxes when it comes to selecting which property to purchase. Buying well takes time researching the market and understanding where prices truly sit. It can become a second full time job if we do it alone and want to succeed. The wrong property is often purchased purely due to lack of time dedicated to the cause.
Look at the common elements amongst the properties that have outperformed the market during the past 20, 30, 40 years or more. Understand that history usually provides us with a great insight into the future. Finding some of the commonalities around the historically high performing property ‘products’ will help ensure you select an investment that is likely to provide a superior return on your investment. There are many elements that determine why some individual properties outperform the market: specific suburbs, pockets of suburbs, streets, streetscape style, activity in the street, architectural style, floor plan, land-to-asset ratio, local amenities, sought-after schools, established communities, safety, property aspect, natural light, public transport as well as many others. The list goes on and on! It is difficult to know what is relevant without expert guidance. As a minimum, it is always helps to have a co-pilot along for the ride!
A key driver for better than average returns on property investment is the increase in land value. What drives increased land value – the ‘demand’ – is the number of people who want to live in that area (if they can afford to) in combination with the ‘supply’ of land available for people to live in that area. This demand for the land also has the ability to drive up rental increases over the long term.
The building or dwelling sitting on top of the land can have some appeal that compliments the land value, and is a very important aspect of successful investing. Just as importantly, the building itself can be depreciating significantly and therefore working against any appreciation in land value.
Click here to make a time to discuss your property planning or personalised strategic financing needs or call the office – 03 9819 4088 (Melbourne), 02 9387 1344 (Sydney).
David Johnston, Managing Director
