How to identify the best place to buy property for capital growth?

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As a property investor you want to achieve capital growth, so how do you identity the best place to buy property to realise the greatest price increases? The rate at which your property grows will not only increase the equity you have available, it will also have an impact on your ability to purchase other property, or simply used the gained equity as cast for other items. This means, it’s really important you buy a property in the right place. But how do you know which city, or country will see the most growth, and where the best place to buy property actually is?

Real estate appreciates in value for many reasons. The key is knowing what indicators you need to look out for. If you’re an off plan investor, these principals apply no matter where you are looking to invest, from London to Auckland, Sydney to Thailand – you should use these indicators.


Indicator 1 – The Economy and Public Sentiment

The performance of the domestic economy and economic sentiment have a significant impact on housing values. The more confident that people are, the more comfortable they are in their employment prospects and income stability and will be more willing to invest and purchase property.

So, if you’re trying to identify the best place to buy rental property, you need to look at the key economic and public sentiment indicators for house price growth, which are:

  • Gross Domestic Product (GDP)
  • Monetary Policy
  • Consumer Price Index (CPI)
  • Unemployment Statistics
  • Retail Sales Figures
  • Manufacturing and Trade Inventories Sales
  • Stock Market
  • Household Debt

As an investor, you need to take the temperature of the economy and public sentiment by keeping abreast of these measures.

Indicator 2 – Interest rates

Interest rates have the largest impact on real estate values, so as an investor, interest rates will be a key factor in helping you identity the best place for property investment.

Mortgage costs are generally a property investors highest expense when owning and maintaining property. Therefore, when interest rates are lower, demand for property and the price of property generally increases as the cost to own property goes down.

This is why there is generally an inverse relationship between interest rates and rental prices. Because the higher the interest rate, the less people can afford to buy, meaning rental prices increase as more people choose to rent than own property and the increased demand for rental properties causes increased rental prices.

Indicator 3 – Demographics

The demographic composition of an area and any changes to that composition can have a significant impact on property pricing.  When young workers and families move into an area, this tends to put upward pressure on pricing. Conversely an ageing population can apply downward pressure on pricing over time. 

As an investor you need to consider the following in terms of changes to pricing and values; these are:

  • How will changes in the demographics increase demand for property in a given location?
  • Who will demand this property?
  • What would be the impact on property prices if many people were to move out of a specific location?
Pins on a map of the world.  Where is the best place to buy property?

Indicator 4 – Government Policies and Subsidies

Policy and subsidies are typically used to stimulate a specific part of the market or to deter certain groups from participating in the real estate market and yet their impact on house prices is often underestimated.   

The issue with government policy is that it is difficult to fully anticipate the impact of various policies on a real estate market and it’s impossible to predict them. Government’s in developed countries, particularly major cities, generally face the same issues: affordability difficulties for first time buyers and an undersupply of housing. Many governments try to tackle these problems in similar ways and in many cases, they have unintended consequences. Government initiatives include:

First time buyer subsidies:  Whilst these subsidies are designed to ‘help’ buyers, this can drive up values at the lower end of the market at a much faster rates, meaning first home buyers then participate in purchasing at inflated prices.

Additional Taxes on foreign and second home buyers:  Again, this can have unintended consequences, as in practice this often slows down new development – ironically putting upward pressure on housing and likewise changing the dynamic of the market. As an investors, you will more than likely simply focus on the lower end of the market where the tax impacts are lower.

Governments use these levers to temporarily boost or dampen demand from specific groups of buyers. By being aware of current government policies and legislation you can determine changes in supply and demand and identify potentially false trends, therefore helping you to identify where the best place to buy is and more importantly where not to buy!

Indicator 5 – New Planning Approvals

This is partially linked to both demographic changes and infrastructure investment. As locations become more desirable, more and more residential development will take place. This is because as property values increase, the value of potential development land will also increase.

Ultimately this means that more and more developers will seek to undertake planning applications for re-development. And, as more applications for new planning are made, there will be a corresponding increase in planning approvals. In many scenarios this will generate a snowball effect as more and more development takes place.

Indicator 6 – Regeneration Projects

Regeneration is the final indicator to use when identifying the best place to buy property, because it often signals the start of potential capital appreciation. With larger projects in particular, where the development is completed in phases over a number of years, developers will increase pricing throughout the development process. The increase in price is because of the ‘place making’ which takes place as more and more of the development is completed.

At the start of a large regeneration project there will be fewer facilities and local amenity improvements in place for the early buyers to benefit from, as a significant amount of development work will not have been completed – the price of the apartments in the first phases should reflect that. So, for investors, the best place to buy property can be at the beginning of a regeneration scheme.

Coins with houses stacked in increase amounts to indicate property price growth.

Whether you’re a seasoned investor or a first time investor, be sure to look at all the indicators that will help to give you a clear picture of the best place to buy investment property. Don’t just rely on research given to you by the person trying to sell you a property, they are more than likely only going to tell you one thing! Do your own research, know what you’re looking for and make informed, education investment decisions.

If you’re an investor buying new build, off plan property, check out our article which explains why new build properties cost more, and how much more you should pay. Read more…

Important notice:  PropTech Pioneer and its associated companies seeks to provide investors with guides, information and tools, but we cannot guarantee this information to be accurate or perfect.  You use the information at your own risk and accept no liability if you rely on this information.   Du Val Private Office are not tax advisors, conveyances, lawyers or financial advisors.