Why demographics are important to investment success? In a day and age in which information is available at the click of a button, an investor taking the first steps into the world of property investment may find that a few misconceptions have already taken hold. This can lead to mistakes that can lead to poor choices, costly errors, and bad investments, which unfortunately can result in unwanted financial loss. One misconception has to do with demographics. While the main standard of a property is usually its location, if you disregard the demographic characteristics of an investment area, you may end up with a train wreck of massive proportions. With your next investment, ask yourself: how do demographics influence the result, and what can be done to maximise the conditions of a certain area to increase the return on my investment? What do people want? Demographics are intimately related to human behaviour, and have shifted and changed over generations, with what was once acceptable for our grandparents now becoming unpopular. To help explain this point better, let’s take a look at this shift in recent years. The Australian mining boom is slowing down, which means the focus of new generations is shifting away from rural areas to larger concentrations of comparably minded people. This is making them search out locations where the assistance they require are within their reach and can fulfill needs and wants in the least amount of time possible. To the new generation, the peace and quiet of the countryside is no longer a practical option. They’re looking for a more fast-paced lifestyle, and they want to be right at the centre of the action. Those looking for property today feel the necessity for a certain number of commodities, such as fast internet connections, variety of entertainment, improved communications, better schools, convenient public transportation system and shorter travel times to and from work, which only the larger urban areas can provide. Who will be buying next? As shown by recent studies, people purchasing their most expensive home are those in the age range of 39 to 45. It is this group that must be closely watched to determine the next trends in location and demographics. Another aspect that will help determine the next group of potential buyers are wage increases, which when coupled with the age range mentioned above, will spawn a market ripe for new property buyers in choice areas. While this age group is not in search of their final home just yet, they are at a point where they are focusing more on comfort and convenience rather than retirement. This age group is in search of the ultimate commodity – a home that is close enough to their job and city life without being fastened in the middle of it all. These potential buyers are economically active with at least 20 more years left in the job market and growing children. This only means one thing: their income perspective will only tend to grow, ripening the opportunity for an investment boom. On a contrasting note, the areas where the market is dominated by people in a higher age range (50 to 65) will contribute to show a decline in economic activity over the next decade, with most of its members retiring on a more fixed, and less likely to grow, income. This is a fact that reduces the possibility of an expansive growth of the investment market. The value of socioeconomic factors One of the key considerations that will generate to good investments must be viewed from the socioeconomic standpoint. The monthly wage of those looking to live in a certain area must be adaptable with the purchase price, or the market will tend to collapse. There are two different groups of markets: the Bearable market and the Equitable market. The first one refers to an economic situation in which the monthly payment on the property is barely covered by a person’s income. The second refers to a market in which the monthly payment is not only covered by wages, but allows room for gain or the creation of equity. When there’s an increase in wages, the value of the property will tend to increase correspondingly, making for an exponential growth in the margin of opportunity for investment. What exactly should I look for? One of the first things you must look for when seeking out the perfect investment opportunity is the overall set of characteristics in a specific area. For example, an area with a larger number of renters might put off a potential owner-occupier because it may give the appearance (although false in most cases) of other owners not wanting to live there. Another point to keep in mind is that renters don’t place the same amount of interest in the enhancement of the property as an owner-occupier would, which in turn may cause property prices to go down rather than up. On the other hand, the economic factor is of utmost concern. The more affordable the property, the more people will become interested in the area. This, of course, must be also coupled with other factors such as distance from main roadways, commuting schedules, public services and the attention to personal and family needs (including supermarkets, parks, and shopping centres, among others). The reputation and the disposition of the residents of a certain area can weigh heavily on the demographics. When an area has a dubious reputation or lacks community involvement, it may require more work and certain improvements before becoming ripe for investment and growth. All in all, demographics are, and always will be, one of the main factors driving the price and interest in certain areas. Those in the younger age range will look for characteristics such as affordability and access to certain features, while those who are older will look for conditions to suit their specific need. Always keep in mind that no matter how other growth drivers compare, the demographics of an area should never be overlooked.
Posted on: Sun, 31 Aug 2014 07:00:01 +0000
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