Beyond Location, How We Analyse Data to Select Top-Performing Suburbs

By Rich Harvey, CEO & Founder, propertybuyer

Written by: Rich Harvey, CEO & Founder

propertybuyer.com.au

Are you serious about building wealth through property investment? We understand that navigating the market can be complex. That's where our expertise comes in. We've developed a proven methodology to help you pinpoint the right suburbs with high capital growth potential. 

Picking property winners involves a strategic approach, not just luck. We leverage data analysis and local knowledge to develop a clear methodology for successful property investment. This month I reveal some of the critical factors we consider when helping you make smart property choices. 

I have personally used this process to build my own property portfolio, and its effectiveness is backed by years of successful results…  

Macroeconomic Data 

There are over 15,000 suburbs to choose from in Australia. Each capital city and each state have unique characteristics that determine its economic performance and desirability. Some of the key macro-economic factors to examine are:  

• Interest rates 

• Population growth 

• Economic growth 

• Unemployment 

• Demographics 

• Inflation 

• Exchange rates 

• Demand for credit 

• Consumer sentiment 

• Property cycles 

• Wages 
  
  

While media headlines tout city-wide averages, successful investment hinges on specific suburbs. You need to dig much deeper. The macro factors do have a major impact – primarily on consumer sentiment and borrowing capacity. But you need to put the macro factors into perspective. 

I love finding suburbs with limited scope for rezoning, massive infrastructure spend, significant jobs and diversifying industries. Locations with tight supply and ongoing / high demand are ideal.  

Digging Deeper: Microeconomic Data 

Beyond national trends, we delve into suburb-specific data, both quantitative and qualitative. 

Quantitative Data 

Median prices help provide a baseline for comparison – but the major problem with median prices is they are backward looking and therefore a lagging indicator. I am looking for a trendline in the suburb – something that shows me the suburb has consistent demand. 

Next, we look at three primary elements to consider: two on the demand side, one on the supply side. These 3 quantifiable indicators when assessed together, form our lead indicators and allow us to make a call on the strength of the area for property investment. 

Demand factors  

       2. Online Search Demand 

 In today's digital age, online search activity offers valuable insights into buyer interest. We track the number of online searches for properties within a specific suburb each month. Rising or steady search activity indicates strong and potentially increasing demand for properties in that area. This can lead to multiple offers on properties which drives prices upward. 

 Key trend we want to see: Rising or steady month on month growth (within 15 percent of any peak that has occurred in the last 12 months) 

This metric reflects the time from listing to sale. Agents only put properties under contract online when the property goes unconditional. 

 Note that auctions are a primary selling method in the affluent suburbs so they are generally a 3 or 4 week campaign. So, if the days on market is less than 28 days, it shows that a number of properties have been purchased early by private treaty, perhaps in a couple of days with a 14 day finance period, or using cash which has brought the days on market to less than 28 days as an average.  If dropping or steady, it demonstrates both demand and competition for property.  

Key trend we want to see: Dropping or steady. 

Supply 

While a healthy supply of properties is essential for a functioning market, an overabundance can put downward pressure on prices. Ideally, we seek suburbs with steady or slightly dropping listing volumes. This scenario suggests low supply and high demand, creating a favourable environment for investors.  

Key trend we want to see: Volumes well below the long-term average, remaining steady but allowing for seasonal patterns such as increases in the August-October Spring selling season, decreases in December over the festive season and January increase again in listings.  

If demand is still overwhelming - often increases in supply can be absorbed by that demand. Days on market will determine whether this is occurring. 

Other Investment Factors: 

This data set can be misleading for an entire suburb, with older character homes with considerable land values that are tiny or dingy skewing the areas yield data. You will find a quality modern home will achieve over the suburb average yield. 

Due to the current state of the rental crisis some properties have multiple applicants, so rental yields will be property specific and whilst 3.5 percent is a baseline, a quality property should achieve around 4 percent. And we can regularly achieve over 5 percent or 6 percent using positive cashflow strategies. 

We like areas with low vacancy rates – ie. The proportion of rental properties in a suburb currently sitting vacant.  A low figure is a positive indicator of high rental demand.  

Key trend we want to see: 2.5 percent or lower. 

We avoid areas which have the potential for a large increase in supply of new housing as this will add extra supply to the rental and sales pool thereby diminishing demand. We review dwelling approvals keep watch on new developments.   

We do not consider flood or fire zone properties, areas with high insurance costs nor properties with major overlays or other less desirable features. 

Qualitative Data 

Moving on from the hard facts and figures there are several other qualitative elements to consider. 

We classify suburbs into 3 main categories:  Growth, Maturing, Established. 

Growth:

Unlike what property spruikers promote with their glossy brochures, these areas are to be avoided at all costs.   

They are the new suburbs on the edge of cities, often they have significant future supply that can be brought on as soon as developments are sold. In QLD they are dominated by investment/off the plan sales by property spruikers and do not have an established community. Their infrastructure, amenities or transport are in not place, so that creates cheap rentals and dilutes the rental market and yield. When the market softens, many of these investors try to cash out and this property prices plummet. 

Every suburb in Australia has been a growth suburb initially. However, these suburbs should not be considered until properties are built, the schools, infrastructure and community begins to thrive, the investors cash out and owner occupiers start replacing them over an entire property cycle.  

Maturing: 

These are those former growth suburbs that now have demand tracking well above supply (but still may have limited supply remaining), have grown into themselves and now have schools, amenities, community and things that are attractive to residents. You have owner occupiers who are driving the market and buying homes rather than primarily investors. 

These maturing suburbs have great potential for property growth. They often, over a 10-year cycle (once the transition to maturing occurs), outperform established and other areas even at the same starting price points. 

Established: 

These are the suburbs that have been fully established and will either be premium blue chip, well regarded and well serviced general suburban areas, or, in lower price points, a less regarded but established suburban area. They have little to no comparable future supply apart from the odd medium density, a single or 2 lot knock-down rebuilds etc. Many owners in these areas try and value add, renovate and it is difficult to overcapitalize in the premium areas. These provide strong overall outcomes and often their location, amenities and lifestyle are superior. They also generally are better located to things like the CBD, urban renewal areas (or be one) and the best of the city's vocations and recreation. They can go through urban renewal and development which is generally a positive (but sometimes can be a negative). If they are bringing in loads of medium density to the suburb this will impact on the suburb and change its demographics, on street parking, and other things. They can be subject to wider market forces and can be slightly less resilient in their consistency of growth when things like rates are rising. 

Is any future development in the suburb negative, neutral or positive? 

In many established suburbs, there is very limited scope for future development (unless there is major re-zoning of density). Where high quality and well-designed developments of new residential, retail or commercial premises are built in limited numbers, this can add to overall amenity of the suburb. However, where there is major density changes and super high rises of 20+ stories are built of low-grade investor stock which creates traffic jams and detracts from local amenity this will have a negative impact. 

These are how we categorize suburbs: 

• Premium Blue Chip 

• Premium Maturing 

• Well regarded Suburban 

• Traditional suburban 

• Less regarded suburban 

• Growth suburban 

Apart from growth suburban, all the other types are investible. Some suburbs move up these categories over time, such as a Redfern, Castle Hill or Bondi in NSW from its humble roots. Some will never evolve from where they are. Once they get to Premium Blue Chip, generally they stay there and many people view these as future proof in capital cities long term.  

Property investing is both an art and science – the art is in researching, analysing and negotiating while the science is understanding and interpreting the market data to pinpoint the right suburbs. Researching is a time-consuming business. To be successful you need to be serious and commit considerable time to the task. It’s also easy to make a mistake and miss something important along the way. You cannot always trust the data. We have developed a true and tested methodology to help our clients find good success in anything we purchase. 

If you’d like further information about other criteria we use to select investment locations, you can download my free report here titled: Top 20 Property Investment Criteria. 

And if you’d like to chat with my friendly team of Buyers Advocates about your property plans.

Call us on 1300 655 615 or send us your Property Brief here.   

We’d be delighted to help.  

Click here to get in touch with the Propertybuyer team:

or call 1300 655 615