What Are the Key Metrics to Identify Underperforming Property Markets?
Not all market downturns are reported by flashy headlines and dramatic news. Sometimes, the decline is gradual and subtle, often going unnoticed until it’s too late. Like all events, there are warning signs to watch out for. These signs are nothing but a set of key metrics that can address the market’s conditions. An underperforming property market is a silent crisis that can result in minimal rental yields, stunted growth, and difficulty in selling properties in the future.
When you’re unsure about the performance of a market, it is vital to consider critical indicators that signal a property market’s current conditions. What are these key metrics? And is there any way to navigate through underperforming markets effectively? We’ll tell you “what” and “how”.
What is an underperforming property market?
Key metrics to identify underperforming property markets
The warning signs mentioned earlier are not dramatically exposed. They are more subtle and it is up to the investors to dig deep and understand the property market before investing. We at The Investors Agency boast our expertise in the local market and our team of investment property buyers agents will assist you with market insights so that you make informed investment decisions.
Declining population growth
Population growth is a major driver of property demand. Areas experiencing a population decline often see reduced housing demand. This leads to lower property values and rents. For instance, regions where industries have shut down or fewer economic opportunities are present, population growth tends to decrease. People prefer living in a property that holds growth potential.
Between 2015 and 2023, some suburbs in Australia experienced negative population growth due to a significant shift toward urbanisation. This highly impacted the property values in those areas.
Investors must monitor the population growth rate over the past 5-10 years to understand the trends of that locality. With this, you can make profitable investment decisions.
Weak employment opportunities
Employment rates are directly linked to housing demand. Regions with limited job opportunities often struggle to attract or retain residents. This negatively affects the property market because people prefer properties that offer better employment opportunities. Access to basic amenities such as transportation, is another factor determining the demand for a property.
Regions with a high unemployment rate show reduced economic activity. Due to this, new residents and investors tend to move away from these regions. Before deciding on property investment, it is essential to consider the opportunities offered by that area.
Declining property prices
Understanding the property price and how it changes over time provides insight into market performance. Markets where property prices remain stagnant or decline may indicate underlying issues, such as oversupply or weak demand. In a particular location where oversupply of properties is common, the demand tends to decrease.
In some regional markets in Australia, oversupply of new housing developments has led to falling property values. Considering the median property price over a five year period can provide a clear idea about how a property is being projected in a market. If a region is experiencing a continued decrease in property prices, there is a possibility that properties in that area are underdeveloped or there is a prolonged oversupply of properties.
Low rental yield
Low rental yields often signal poor returns on investment. Similarly, high vacancy rates indicate an oversupplied market or low tenant demand. These signs significantly deter potential investors from entering into the property market. A lack of infrastructure, such as public transport, schools, and healthcare facilities, can limit an area’s appeal. However, areas with upcoming infrastructure projects often show potential for growth.
Poor infrastructure is one of the overlooked factors in property investments. When a location shows less promise of growth and development, the buyer interest declines and due to that, rental yields face a sharp drop.
Economic indicators
Regions heavily reliant on specific industries can suffer when those industries face downturns. For example, mining towns often see sharp declines in property demand during commodity price slumps. And thus, the property is now part of an underperforming market with low demand and low property price.
High crime rates deter potential residents. They negatively impact property values because investors are not willing to take on the risks that comes along in an area with high crime rate. Investors should examine local crime statistics as part of their due diligence.
Start your investment journey with us
With $85,000 in savings or equity, you can begin or grow your investment portfolio with high-growth
properties in Australia's strongest property markets.
With $85,000 in savings or equity, you can begin or grow your investment portfolio with high-growth properties in Australia's strongest property markets.
Why do you need to monitor these metrics?
Understanding and evaluating these metrics helps investors mitigate risks associated with underperforming markets. Metrics like population growth, economic stability, and infrastructure development offer predictive insights, allowing investors to anticipate future trends. A market experiencing population growth paired with upcoming infrastructure projects is likely to transition from underperforming to thriving in the coming years. Investors can consult the experts in the field to ensure that they are on the right track.
We at The Investors Agency provide detailed, step-by-step guidance to you so that you receive a substantial return in the long run. We conduct the due diligence of aroperty for you and present the market insights that we derived from our local knowledge of the market. We understand the nuances behind the property market and we help you to understand these insights effectively.
Strategies to mitigate risks in underperforming markets
Investors should avoid placing all their capital in a single market. Diversifying across different regions, property types, and industries reduces exposure to risks associated with any one underperforming market. Evenly balancing the risks is a wise way to maintain a strong portfolio that ensures stable returns from a region even when another sector is facing losses.
Some underperforming markets may show promise due to planned infrastructure or economic initiatives. Investors must weigh short-term against long-term growth opportunities. Investing in properties is profitable in the long run. So, setbacks in a short period should not affect the property market in the long run.
Conclusion
Frequently asked questions
Can an underperforming market recover, and how can I identify potential recovery areas?
How do I balance risk when investing in a potentially underperforming market?
What are the early warning signs of an underperforming property market?
What role do professional agencies play in identifying underperforming markets?
At The Investors Agency, we find you...
The best returning properties that your portfolio needs.
At The Investors Agency,
we find you...
portfolio needs.
