Knowing the Cycle: The Micro Market

Posted by Luke Graham

Our third instalment of the ‘knowing the cycle’ series explores micro markets, or markets within markets.

With the dawning of the information age and the increased prevalence and utility of social media, there are many sources of information. With regards to particular property markets, the bulk of information focuses on the big picture, or macro performance, of a town or city.

Although this is a great indicator, the macro performance may not reflect the performance of a particular property asset type within that macro market. Variables can include the quality of fixtures and fittings, design (including property type and size), aspect, location and convenience to amenities.

The challenge for an investor when considering micro variables like the ones listed above is that the fundamentals will change significantly from suburb to suburb. Because of this, a marrying of the micro variables and the macro performance is required.

The Blue Wealth research model assists property investors by ensuring they are not only purchasing in the right area (macro), but also purchasing the right property (micro) in that area.

For example:

If research indicates there is a growing proportion of highly paid professionals working sixty hour weeks deciding to live alone in suburb X, and the reactive supply of housing that caters to these people is limited, what will happen to the prices of these relevant properties? Furthermore, exactly what type of property will cater to these individuals in the first place?

With a demographic like the one above, questions that a potential ‘supplier of housing’ should ask themselves will include:

Will residents be inclined to desire proximity to work?
Will residents have time to maintain the property?
Will residents need immediate convenience to amenities like food?
Will residents prefer higher end finishes?

The demographic variables of an area will go a long way in dictating the relevant supply needed both now and into the future. This point alone should make investors question preconceived ideas from decades past that endorse the ‘quarter acre block in the suburbs’.

Posted by Luke Graham, on 2nd Sep 2014