Capital growth is one of the main reasons to invest in a property. The simple idea of buying a property which increases in value over time is such an attractive option for investors, especially when they don’t even have to do any work to the property in questions for its price to go up.
In this article, I will run through 8 indicators that signal an area that is likely to experience big levels of capital growth in the future.
Demand high, supply low
The key reason why house prices in the UK have risen to the extent they have is down to the massive gap between properties being built and properties that are needed. The discrepancy between supply and demand pushes up property prices as competition for each home on the market increases.
A good way to spot if the demand is high and supply low is to see just how long properties are on the markets in specific areas. If the average time is low, that’s a good sign growth in that area is imminent.
It’s easy to get sucked into properties that are marketed as heavily discounted, but you have to ask the question: why is there a discount? Chances are, the property is struggling to sell at the initial asking price so therefore the developer has to offer it at a cut price. This is usually a sign that demand is weak for property in this area and therefore there’s little chance of growth occurring.
An increase in rental prices is another sign that property prices are on the rise. The number of renters themselves are rising due to the increased difficulty in buying a property outright. So, these tenants are amongst the first to move into an upcoming location, and this increase in renters naturally leads to an increase in rents. The high demand for property combined with a lack of supply pushes up both property and rental prices.
Low vacancies and void periods
The last thing any investor wants is to struggle to let out a property they’ve bought. Void periods provide no cash flow and a goal for any investor is to minimize the chances of these happening. If an area has plenty of properties that are unoccupied, then that’s a sign there isn’t a huge demand for property there. The numbers of vacant properties and the length of void periods are good indicators of demand for rental property. You want both numbers to be low.
High number of property sales
One of the easiest ways to judge if prices are going to rise in an area is to simply look at the sales volume of properties in that specific location. If there are lots of people wanting to buy or rent in an area where supply is limited, then higher rents and higher prices are on their way.
Ideally, you would like a proportion of owner-occupiers to tenants that is weighted heavily towards owner-occupiers. Low numbers of tenants mean that there will be less competition for your buy-to-let property. Owner-occupiers tend to look after their property better, which has a positive impact on the surrounding area.
Good demand for your investment is indicated especially if a high ratio of owner-occupiers is accompanied by low void periods and vacant properties.
If local councils and government led initiatives are pumping millions of pounds into a city in the UK, that’s usually a good sign that the location is good for property investment. Improvements to local infrastructure, more jobs are created, and the city generally becomes a nicer place to live.
For example, the BBCs well publicized move to Salford in Manchester brought millions of pounds worth of investment there and brought jobs, industry and a general better quality of living. Take a look at where huge money is being pumped into by reading various news outlets. This will increase the demand for property in this location and therefore leads to capital growth.
High employment figures
An area with plenty of people in work means the area likely has a strong economy with said people earning a good income. This means more and more people will flock to the city and this widens your target market for prospective tenants. We’ve already established that more renters lead to higher rents, and higher rents goes hand in hand with increased property prices.
Most major UK cities have good enough employment figures based on population but look at specific areas within a city to give yourself the best chance of attaining capital growth.
Now that you know the tell-tale signs of capital growth, you begin to notice these signs the more properties you look at. You’ll have a much clearer view of an areas potential for growth and invest accordingly.
Remember- it all largely boils down to supply and demand!
For more information on our latest investment opportunities, click on the Investments tab on our homepage. Alternatively, give us a call on 0208 445 6542 or email us at email@example.com for more details.