The 3 most important considerations in property are said to be: ‘location, location, and location’.
If you’ve ever checked out house prices in your local area, you might have noticed what a difference there can be, even between one end of the street and another. Small changes in location can drive thousands of pounds’ worth of difference in value and profit. And it’s vital to choose wisely, because it’s impossible to reverse!
When you’re assessing a potential property development or investment opportunity, some of the most important factors are market and economy related, and related to the deal, goals and strategy.
If you’re looking at investing in a development project for the first time and don’t know the area well, here’s 15 questions worth asking about the location, and its ‘fundamentals’ – the factors which drive its current and future attractiveness – to help you to decide:
- What is happening to property prices and values, and why? Marketing prices aren’t always the same as market value. Cheap property prices do not necessarily equal a great deal, and rising marketing prices do not necessarily equate to an equivalent increase in fundamental value. In some areas of the country, you can pick up properties for £1; in others, properties are marketed at far more than they will sell for, and still rising. To get geeky, value is defined by the RICS as what would be paid by ‘a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion’…Not always what an estate agent would price a property at! Look at sales which have actually completed, not properties on the market, as a quick guide to assess values, and look at the time properties are marketed as a quick guide to whether the marketing prices are right.
- What is happening to property demand and supply? A large house building scheme will increase supply, and if the area isn’t genuinely becoming more attractive at the same time to drive demand, then property prices will be more likely to fall. If no more housing is being built locally but there’s a brilliant new school and hospital in the area, people will be attracted and prices will increase.
- Where are the jobs? Find out where employers in the area are located in relation to the opportunity, as people will generally pay to be better connected to or closer to where they work.
- What’s happening in the local economy in terms of employment? The level of unemployment is a good indicator of demand, and if there is a growing industry niche such as tech, attracting workers and more businesses to the area this will help.
- How long does it take to get to where people want or need to be, for work, facilities and leisure? Look at where the nearest shops, restaurants, schools, and hospitals are in relation to the opportunity.
- How well-connected is it to other economic hubs, such as London or Manchester?
- What future changes are anticipated in terms of connectivity? Examples of this in practice include the positive impacts of Crossrail and HS2 on property values, and the reduction in value associated with properties connected to London by Southern Rail due to the frequency of service disruption
- What is the area like? It can be a delicate balance between numbers on a spreadsheet, and the reality of people’s instinct or opinion about an area, and this can vary within a few meters, or between adjacent blocks of flats. You can find out a lot from speaking to local people, visiting the area, and reading the local newspaper.
- What’s changing in the local area? For example, large public/private regeneration schemes which genuinely improve an area will make it more attractive, and increase property prices – the Westfield Centre in Croydon, Canary Wharf, and regeneration associated with the London Olympics are great examples
- What are local people and their community like – generally and in the specific area? Some of this reflects other market factors. For example, high crime might reflect high unemployment and poverty; a university will reflect and attract a high student population, and a highly creative community of artists, if you follow historical trends, is often a strong predictor for future gentrification.
- What is the quality of the amenities? A school with consistently ‘outstanding’ OFSTED ratings will attract families to an area. Shops can be both a determinant and a reflector of value in an area: large chain supermarkets pour money into choosing locations where demand will be strong. You can leverage their sophisticated research and analytics to identify areas of higher demand. And supermarkets can impact value, for example proximity to a Waitrose can reputedly add thousands of pounds to property prices.
- How hot is the market and why – who is buying, and how frequently?
- How affordable are properties for local people? A useful metric is the average multiple of income that a typical property costs.
- What do the local estate agents, investors and developers say about the local market, when you quiz them?
- How does the project strategy fit with what people want in the local area, and forecast changes? For example, building 1 bedroom flats to sell, in an area that only attracts families might not be a great fit.
Having analysed thousands of opportunities across England for the last 3 years, it’s clear there is no single ‘right answer’, and there is no permanent answer.
Positive responses to the questions above are helpful as a guide to your decision, but there will always be more questions to ask, all areas involve compromise, and market dynamics change over time.
For example, in the space of a few years, prime central London areas such as Mayfair have fallen from favour, while previously unloved regional cities such as Derby, and commuter belt towns such as Brentwood have become more attractive – a trend set to continue.
If you’re passionate about property, it can be difficult to make an objective, not emotionally-driven decision. Honestly assessing the fundamentals and market forces can be a great way to work out if the area is suitable. But be warned, the best locations to invest in or develop are not always the most glamorous!