How Do You Analyse The Property Market Prior To Investment?
Last updated 03/07/2018
How do you analyse the property market prior to investment if you are not an expert, or know what data to look at and how to analyse it?
Here is our guide on how to analyse the property market prior to considering making an investment.
Why do you need to analyse?
Rule number 1, don’t buy a property in an area that you don’t understand. Any property market can be considered unpredictable if you do not research and analyse the underlying foundation of the area drivers.
Being able to analyse the property market with both past and present trends helps us in turn make educated predictions of the future market conditions which will effect the property that you want to invest in, whether it’s before or after completion.
The main purpose is to keep track and up to date with any changes in the market. Sometimes change can take years so many will be able to rinse, repeat and implement the same property development strategy year on year.
If the market develops on an uptrend then it makes sense to flip property and sell it on for a quick turnaround. If we see a down trend then it pays to take time to build up your cash generating portfolio by relying on the rental income from your property for a number of years.
Monitoring the ups and the downs of the market will indicate whether you should or shouldn’t invest, hold or move on. A good tip is to check out the House Price Index (HPI).
What do you need to analyse?
When analysing the property market prior to investment you can categorize analytical factors into two categories - Primary and Secondary factors.
These are the fundamental elements of the property market which are determined by the supply, demand and inventory of the market.
One of the first factors to analyse is the supply of properties available. These include the ones under construction, those awaiting planning permission or conversions. Simply put, is there a steady supply of property to invest in?
This is the flip side of the supply, is there a demand for property? Are there buyers who are buying the properties that are currently for sale? Are there a number of completed sales or are the properties sitting empty for long periods of time?
It needs to be considered or you could end up with an empty property costing you money; therefore you are left with a property you are unable to sell. This is almost always bad news. What is the demographic like in that area and the population trends which are currently being displayed?
It’s 80% planning and 20% execution.
This is the change in unsold units between the supply and the demand. If there are many unsold properties could it be there is an oversupply? If there is a drop then this is known as an undersupply.
These can be classed as the forces which are a catalyst for a new trends developing in the market such as the high unemployment rates, inflations and household income as if people do not have a stable regular income they will not be able to afford rent or to buy a property.
The job market is a term used to describe employers and employees seeking working. High unemployment could have a direct effect to underperforming property prices and the demand to live in those areas is lower as people will want to aspire to live in better conditions, with better job opportunities.
Take into account job vacancies in the surrounding location, business confidence and bankruptcy rates. The most control you can have here is to plan with sheer diligence.
Consumer confidence is the opinion of the health of the economy by the general public. It could be how they view their own finances and income, as well as the growth of the economy both in the short and long term and the willingness of the public to spend or to cut back.
When confidence is low people will be less likely to buy a house, or move from their current stable situation.
We can look at inflation rates, as when rates are high consumers will cut back and when they are stable people will be more likely to make big financial decisions - namely, purchasing property. To analyse the current property market we can use past house prices as well as predicted house prices to also gauge the market also.
Finance and the property market go hand in hand therefore it must be looked at in detail, with diligence. Access to finance is essential to purchase property, as well as the ability to get a mortgage. Is there a high bank loan rejection rate currently? If so, why is that?
Mortgage rates will have a correlation to real estate prices and interest rates will affect the availability of capital and demand for investment.
When looking at this data you will have a better idea of where the market is heading and if now is a good time to invest or not.
Take the time to gather the data and take it fully into consideration when analysing the property market prior to investment as this could determine whether you add to your portfolio or you wait.
If you’re not sure and would like some guidance on how to analyse a property market, dependent on your strategy we have one of two property education courses to guide you.
We would advise you to seek independent financial advice before investing. Capital at risk when investing in property.