Using Data To Make Informed Property Investment Decisions

The investment world is ruthless, unforgiving, and volatile, in addition to being rewarding. If you are not smart, diligent, and analytical, you are unlikely to see its positive side. Property is complex and there are any number of risks involved with potentially far-reaching and devastating effects. 

In a technological age with thousands of data points available at our fingertips, now more than ever, statistics have given a valuable insight into the metrics behind what makes a successful investment in property. 

Analysing property data removes a large portion of the guesswork associated with investing in property. However, data in isolation is dangerous and easily misinterpreted so it’s important to consider a number of different sets of statistics in order to accurately predict a suburb’s investment potential. So, what are those points? 

Before we get into the intricacies of each data set, it’s important to acknowledge that knowing when to invest will tell you where to invest. We’ve heard the saying time and time again in relation to real estate, location, location, location. However, most first time investors will look to the suburbs surrounding where they live and that’s the wrong strategy. In order to have exposure to the best investment markets, it’s imperative to take a nation-wide approach, this way you’ll have access to opportunities in markets that are in more favourable stages on the property cycle to the suburbs in the immediate vicinity around your local area. 

In order to identify these suburbs, it’s important to look at a number of micro-economic factors, these include population growth, infrastructure investment, employment growth, wage growth, future housing supply versus underlying demand, affordability, GDP for the LGA, etc. These factors will reliably indicate where to invest, looking further into the data will indicate when to enter this market. 

For example, looking at the construction of a train line, when will it result in price growth? When there is an announcement, when construction begins, on completion, or two years later when locals are raving about the shortened commute to work?

So, how do you know when it’s the right time to invest in a particular suburb?

In its most simplistic form, the property market is either a buyer’s market, seller’s market or an equilibrium as it transitions between the two. Purchasing in the transition between a buyer’s market to a seller’s market still allows for a potential investor to negotiate a substantial discount and secure position in the market, while then subsequently benefit from the price growth that follows as demand increases and the market becomes more favourable for sellers. This transition window will never last longer than 10-12 weeks. What are the data points to look for when trying to identify a transitioning market?

Days On Market: 
The suburb’s days-on-market metric’s rate of change has stabilized and then decreased, quarter on quarter when analysing 90-day rolling averages over the last 4 periods. This is an indication of increased buyer demand as it is taking less time for properties to sell once they come to market. Moreover, an insight into the relationship between vendor expectation and market expectations. In very simple terms it is demand outstripping supply.

Vendor Discounting: 
The suburb’s average discounting metric rate of change has stabilised and is beginning to decrease, quarter on quarter when analysing 90-day rolling averages over the last 4 periods. This is an indication that vendors can be less negotiable on their asking prices as there is a healthy level of buyer demand

Sales Volumes: 
The suburb’s sales volume metric’s rate of change has increased consistently, quarter on quarter when analysing 90 day rolling averages over the last 4 periods. During a buyer’s market, listing volumes decrease as most vendors will wait to sell when market conditions are more in their favour. Movement in this trend in combination with positive movements in the aforementioned factors indicates an increase in sellers putting their property to market in order to capitalise on the level of buyer demand. 

Gross Yields:
The suburb’s gross yield metric’s rate of change has increased when analysing its 90-day rolling average and also its 365-day rolling average. When this happens it generally means that tenants' interest is increasing in an area. Typically speaking they are future buyers, so this is a lead indicator of future buyer demand. 

Vacancy Rates: 
The suburb’s vacancy rate is below the long term (last five years) trend line’s median value. This demonstrates tight rental demand, an important factor for investors as the property needs to be easily leased. Demand outstripping supply is an indication of this. 

For each criterion above, a potential investor should apply a weighting to each score. If a suburb is weaker in one particular category, it may still be a very sound place to invest so it’s important to consider the data set above in context and in its entirety. 

Ultimately, by harnessing the power of the data available to us now it is possible to remove a substantial portion of risk from property investing. By analysing key sets of data and statistics, it’s probable to identify markets that are in the correct stage of the cycle to invest, this in turn will indicate to an investor where to invest. Timing is the lead indicator to location. 

Buying and holding still remains the safest and most proven method for successful investing, in which case timing the market is less relevant when compared to time in the market.