29 May 2014 Could this be the most fail-proof research strategy?

Looking for an edge in your property research? Then go for a stats-driver combo.

Savvy investors know that drivers such as development work or the arrival of a major service hub (like a university, hospital or shopping centre) can add significant value to a suburb.

Both factors help to attract workers to an area, providing a stable but fluid tenant and consumer pool, and also contribute to investment and growth in that area.

This means that developments like plans for a second airport in Western Sydney [http://www.yourinvestmentpropertymag.com.au/news/western-sydney-set-for-double-digit-growth-amid-second-airport-talk-186679.aspx] or the $5 billion NSW hospital infrastructure upgrade project now underway should always be of interest to investors.

However, Michael Fuller, from Hotspotcentral, said that, while such drivers could be good for an area, it was crucial for investors to look at a broad combination of indicators.

The statistics (like population growth, vacancy rates and rental yields) and fundamental drivers needed to complement each other. One new fundamental driver in isolation (like a new hospital or bypass) was not necessarily a big thing.

Fuller said his message to investors was to look at the statistics and the fundamental drivers of an area - and establish whether there was a good combination of both.

“First, make sure that the statistics overall give a reason for investing in an area. This is crucial when trying to work out the potential for capital growth. Then research the area’s potential drivers.”

In his view, a particularly reliable fundamental driver was the impending development of an extensive new shopping centre.

 Big shopping centre developers like Westfield, or retailers like Coles and Woolworths, will have done the research and they rarely got it wrong, he said.

“So the fact that a major retailer is coming to town is a positive factor for an investor. And, if an investor buys before the shopping centre is built then they should be on the money.”

Should an investor take an interest in an area which had good statistical indicators and was set to benefit from such a driver, they should then compare it to other potentially similar areas.

 Fuller suggested comparing Toowoomba (Queensland) and Parramatta (NSW), which are both set to benefit from new shopping centre investment, as an example.

 Over the next seven years, a new $1.5 billion bypass is being built in Toowoomba and its new airport is nearing completion. The bypass requires an extra 2,500 workers to move to the area, while the airport will be good for commuters.

 In comparison, the Parramatta shopping centre is already the fourth biggest in Australia so, despite the planned expansion, much of the pull will have already played out.

Their statistics were similar but they had very different complimentary fundamentals, Fuller said.
“Much of Parramatta's fundamental capital growth drivers in previous times have been priced in whereas Toowoomba's are still to materialise.”

Investors should also always consider whether it was the right time in the market to buy, the demographics of the area, and what the supply of stock on the market was like, he added.

Investors should also always consider whether it was the right time in the market to buy, the demographics of the area, and what the supply of stock on the market was like, he added.

Reproduced in full with permission: Your Investment Property
May 2014.

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