6 key property indicators for where to invest during COVID

Michael Fuller

August 4, 2020

The COVID pandemic has understandably created fear and uncertainty in the Australian property market. Some of these fears are valid but many are nurtured by what we read in the often popular press. What is not spoken about are the many micro property markets and real estate projects that are crushing it because of the pandemic

So COVID-19 has turned our lives upside down. Lockdown. Restrictions. Financial fears.

At Hotspotcentral, we are lucky in that our Boomscore research platform allows us to track 8 leading property indicators that tell us where to invest and where to avoid...and when. It does this for units and houses in each and every suburb in Australia. By comparing these indicators for all 15,000 suburbs, our Boomscore algorithm quickly pushes the best locations to the top so we know where to focus our research.

Remember it is the gap in supply and demand that determines the potential for capital growth, and our free suburb research tool continues to outperform the property market experts and commentators due the very complex data science involved.

Boomscore gives us a unique insight into which locations are really impacted by COVID-19 and which areas are actually benefitting from it. Yes, our new normal is actually benefitting some property markets. The example below makes this very clear.

Realestate.com.au recently published an interesting article about some recent trends in the property market during lockdown and it's clear that the headlines don't always reflect some of the more unique situations. 

The following 6 indicators help investors understand where to target their investment capital for solid returns in the current environment

1. Search volumes are high on the property portals

One of the eight statistics we track is the number of home buyer searches on the property portals. A high volume of searches suggests high demand. Searches on realestate.com.au have jumped up 72.5% from the lows in April 2020.

TIP:  Don't rely on one data indicator alone but in general terms, 'Number of searches' is a good indication demand (people are looking to buy). The question is where is this demand highest? Which location is experiencing the highest demand relative to supply and not just a high number of searches on the property portals?

2. Distressed sales are low

With all the news of growing unemployment leading to higher mortgagee sales, it's surprising that realestate.com.au has said that only five of the 160,000 listings in June 2020 are for mortgagee sales. They also state that some locations will be more exposed than others, such as areas with high rental vacancies.

The question again is which locations exactly? As investors, we want to be targeting areas that have both a low vacancy rate and where buyer interest on the portals is comparably higher than other areas. If an area stacks up well on ALL the indicators then it gets my interest.

3. First home buyers are on the boil

In order to help keep the construction industry going, the $25,000 Homebuilder Scheme has certainly pushed some first home buyers off the fence which has led to strong demand for house and land projects. This is great but has little bearing on those building and selling units or properties (i.e. rental property) to investors.

From this insight, it would seem investing in property development is a good idea when the end product targets owner-occupier buyers who qualify for this subsidy. 

For now there is not much helping the trusty property investor. This might change as investment stock dries up and rental yields jump as a result.

Prices are rising in premium lifestyle locations

4. House prices are not dropping

You might recall CBA hitting the headlines recently predicting property prices could fall by as much as 32%. Boy oh boy have the media had a field day with this.

However, Realestate.com.au suggests house prices are rising. But be mindful; they are referring to prices in the more upmarket and luxury segment and mostly locations that shout "lifestyle": those that boast beaches, easy transport, all amenities within walking distance, no traffic, lots of employment. Basically the suburb that everyone wants to live in... particularly with the new normal of social distancing and possible repeated lockdowns. Prices might be rising in premium areas, but unfortunately not everyone can afford to buy an investment property in these areas.

Case Study: A project my clients and I are involved in on the Sunshine Coast in Queensland has seen actual sales prices achieved in July 2020 beat the valuer's pre-COVID-19 price estimates by as much as 10%. When I read CBA's article, I wanted to shout back and say that's not applicable to the whole market! There are markets within markets that are doing very well because of the Coronavirus. They are just a lot harder to find... unless you know how.

5. The lockdown unknowns

I think we can assume that isolated (State and Suburb) lockdowns are the new normal for a while. Melbourne, for example, was recovering well but a spike in COVID-19 cases might put a lid on this. But as Realestate.com.au suggests, this might be a positive as economic activity is driven northwards. 

One such area is most certaintly the Sunshine Coast in Queensland. Terry Ryder recently wrote an article "Sunshine Coast remains a standout market during COVID-19" where the "the top end of the market in particular has been boosted, thanks in part to the influx of well-paid medical specialists working in the new medical precinct, based around the $2 billion university hospital."

6. Lack of alternative investments

Realestate.com.au suggests that house prices are not collapsing, arguing that "for some property types such as those in premium suburbs, prices are still rising. A stable banking sector, lots of government stimulus, a lack of properties to buy and a lack of alternative investments are just some of the reasons why this is the case."

Are you are sitting on the fence...waiting to see what happens?

It really comes down to this...

People are still making a lot of money investing in real estate assets. Those that are making a success of it realise that there is not one homogenous property market but many micro-markets (suburbs) that have their own investment drivers. What kind of property is in the highest demand in that location? Then the next question is who is the ideal buyer? Which buyers are less tied to the banks for an income or are less impacted by an economic recession?

When you have a solution for these 'ideal' buyers, owner-occupier buyers, and property that is located in a standout 'lifestyle' area down to the street level (the best street in the best location!), then those properties will always sell at a premium - and more so during COVID-19.

So if you are sitting on the fence, not sure when or what to invest in, never forget the time value of money. The value of money decreases over time and with inflation. There are solid opportunities in the market today but they are far few and between. You just have to look in the right places and rely on the facts and data alone. They are out there.