When investing in property we always want our ‘asset’ to provide us with the strongest return. Investors will always have an end goal in mind and this can be the driving force behind building a property portfolio to reach ones goals. We should aim to never lose sight of these end goals and when selecting each and every investment property, base our decisions on careful research, statistics and the fundamentals that cause the market to grow.
As investors, we need to take emotion out of the equation and treat our property investing like a business, by sticking to the fundamentals for capital growth, investors can reap major benefits. This can assist with maximizing our returns and the overall progress of our portfolio towards the end goal. Selecting the ideal location comes down to selecting the ideal market.
Do ‘holiday locations’ make good investment choices? Lets take an unbiased approach and identify fundamentals that may be supporting or lacking a ‘holiday location’.
Employment and the economic health of a market are extremely important ‘demand’ elements in a property market. As the saying goes, “where there are jobs, there will be people, and where there are people, there will be demand for property”. Diversity of employment plays an important role in driving constant demand for property within a market but also plays an equally important role in minimizing risk.
Diversity of employment can lead to a more stable economy. If one source of employment is suffering due to weak economic conditions, this will have a lesser impact on the market as a whole, if the market is not reliant on that sole source of employment. If there is a range of industries sustaining the health of a market, this will ensure constant demand for property.
Holiday based destinations generally lack diversity of employment and rely on certain industries to sustain growth, such as tourism, construction and to a lesser extent retail. This poses the risk of volatile market conditions and may have a negative impact on the overall performance of one’s property portfolio. This has been experienced historically in areas such as Surfers Paradise and the Gold Coast, where we tend to see short fluctuations in growth followed by sharp drops in prices due to the reliance of tourism.
Holiday destinations tend to attract many retirees due the quiet beachside lifestyle benefits being offered. Beautiful places to settle down, great for a holiday, but these regions can lack future infrastructure spending and the employment opportunities that drive people to live in these markets and demand property. This lack of thriving demand, can lead to a poor performing market.
There are well-selected areas within the Australian property market today that offer all of the fundamentals for capital growth and hold a relatively low level of risk – supported by a diverse range of employment. If an investor conducts the right research, ticks all the boxes, one can invest in the right market at the right time, resulting in a good investment choice.
Are holiday locations good investment choices? Keeping your end goal in mind, if holiday locations don’t tick all the boxes and lack certain fundamentals of growth, is this risk worth taking?