Knowing and understand the characteristics of the property market will help you decide whether you want to invest in the property market.
Find out about the following:
- What is the rental yield? – This will determine as a general rule of thumb how much you can rent out your property.
- What is the interest rate?
- Historically, what has been the exchange rate if you are investing in international properties?
- Who rents? Locals or foreigners? What is the proportion? – This will determine how vulnerable your property is to the economic cycles. For e.g. if more foreigners rent, during the downside of the economy, generally, most foreigners would be the first to leave, hence, affect your rent.
- What are the vacancy rates for the past 5 years or more? – The more information you can get for this, the better, so that you will know how healthy the property market is during the downturn of the economic cycle.
- What is the demand and supply of properties in that country? Naturally, if the supply is tight, the demand will be higher.
- How established are the property laws on rentals? – The more established, the better it is for the landlord and tenants.
- Is the government stable? – This will in turn affect the economy of the country.
- How do the government control the property prices? A market that is more easily controlled by the government will be subjected to more fluctuations in the property prices.
- What are the aims of the government policies? Are they aimed at preventing buyers from buying (long term or short term), or preventing the sellers from selling (long term or short term)?
- What is the mentality of a mid-range investor? Are they more individualistic or more of like a herd-mentality? – This determines how level-headed a typical investor is. The more level-headed they are, the more stable in property prices.
- Listen to a typical investor. Do they talk more about make profits in the shortest time frame? Or do they talk about how many properties they acquire?
- Talk to at least 5 – 10 property agents. Do they invest in properties for long-term profit? Or do they prefer to make short-term profits in the shortest time? What is their rationale? If the property market is healthy and stable, most property agents would invest in properties as their income will be stable. However, if the property market is subjected to fluctuations, most property agents would not invest in properties as their incomes are not stable and they would rather make short-term profits, than to subject themselves to the risk of property ownership.
Some of the information can be obtained from realtors. However, not many is curious enough to take the time and effort to study the trends of the property market (well, maybe except for me). Among those who are curious enough, they will only reveal the information to their long-time clients. After all these are precious information that they had spent time gathering. Hence, most of the time, you may have to do the work yourself. The information is always available. However, without statistical training, knowing the information doesn’t mean that you can interpret it into useful information.
You may notice that I didn’t include information like the GDP, the size and prospects of economy of the country. I’m sure I didn’t need to mention that one shouldn’t invest in a country that doesn’t have a stable government and economy!
Look out for tomorrow’s post on Part 5: Finding the correct market suitable for your investing style!
[End of Part 4: Knowing, and understanding the characteristics of the property market that you are interested in]