How to spot a suburb that’s ready to boom

Investing in property is a goal many buyers look to achieve, but with so many suburbs to choose from, which one is the right investment? We outline what factors indicate rising property value so you can spot booming suburbs.

1. Current infrastructure

When choosing what suburb is best for your investment, it’s a good idea to analyse the local surroundings. Generally, suburbs that have access to public transport are likely to be subjected to higher property prices than surrounding suburbs. Additionally, suburbs that have good schools are likely to appreciate in value as buyers are always looking to purchase or rent property near educational facilities.

Facilities such as shopping outlets and medical centres can also be good indicators of a growing suburb.

• Related: What increases the value of your home? See the property features Aussies buyers want most

2. Future development plans

While existing infrastructure can help you differentiate between surrounding suburbs, future plans can give you a clearer picture of whether a suburb is likely to appreciate. Future plans such as new transport methods, new schools, medical facilities and nightlife facilities usually indicate that this may be an attractive place to live and buyers will look to populate the area.

It is smart to note that while a suburb may not have a variety of existing facilities, future plans can help boost the market. With that being said, some future plans such as a new prison for example can ultimately harm property value, so be sure weigh up the benefits and drawbacks of future infrastructure.

Suburbs that are beginning to experience gentrification are typically bound to face higher property value in the future. The introduction of new cafes, shops, updated landscaping and buildings can be appealing to buyers and renters, ultimately driving the property value up.

Future plans can usually be obtained by contacting the local council. Looking over these plans early can help you decide what suburb will likely experience the most growth and help get you in early.

• Related: Things to consider before buying a studio apartment

3. High auction clearance rates

Some of the best indicators of whether a suburb is growing are recent sales statistics. Recent outcomes can indicate whether there has been an upward trend in the market.

A good place to start with statistics are recent auction outcomes. Suburbs that experience a jump in auction clearance rates are more likely to be subjected to rates of growth. This is because higher auction clearance rates mean that there is a demand for property in this area and more competition when bidding at auction.

A higher demand for properties in a suburb will drive property prices up so identifying these trends early can help you make a healthy investment.

4. Growth in rental yield

While some buyers look for a long-term, forever home in suburbs that might appreciate in twenty or so years, investors look for ways to generate a new source of income through high rental yield by leasing their property.

Rental yield refers to the returns made on an investment property and can help investors determine whether a suburb is appreciating. Rental yield is measured by the following formula:

Gross rental yield = Annual rental income (weekly rental income x 52) / property value x 100

Keep in mind that this formula does not account for expenses related to investment properties.

Suburbs that are gradually increasing in rental yield indicate that the properties within the area are generating larger returns than surrounding properties. For investors that are looking to dive into the property market, investing in areas that have a higher rental yield could prove to be a wise investment.

5. Low vacancy rates

A vacancy rate refers to the portion of available rental properties in an area. A high vacancy rate means that there is a larger number of available rental properties, whereas a low vacancy rate means there is a limited supply.

Suburbs with a low vacancy rate are a typically better investment since it indicates the demand for property in the area outweighs supply. A low vacancy rate means landlords are likely to charge higher rent and usually helps increase the average property value in the suburb.

6. Time on the market

A good way to gauge whether a suburb is outperforming surrounding areas is by watching its performance on the market. Generally, properties in a booming suburb spend a shorter time on the market compared to properties in neutral or depreciating suburbs.

Properties generally spend a shorter time on the market when there is a higher demand to live in those areas. Suburbs that have several of these properties could indicate that there will be a boom in the near future.

However, keep in mind that properties that spend a short time on the market may be in suburbs that have already peaked. When researching the market, it is a good idea to look at suburbs that are gradually progressing rather than remaining stagnant. Investing in a stagnant suburb could mean that you face the downward trend of the properties.

7. The ripple effect

Booming suburbs can sometimes create opportunities for surrounding suburbs as more buyers look to settle down. As vacancies begin to fall and prices begin to rise, some buyers may look to purchase property in the surrounding or nearby suburbs, pushing up prices in that area.

If you missed your chance to invest in a suburb while it was rising, surrounding suburbs may offer a chance to benefit from the boom.

• Related: Read our guide to buying your second home
• Related: 6 tasks to do before you buy your first home
• Related: Check out the most recent Lendi Home Loan Report

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.