{"id":22876,"date":"2018-10-05T01:00:59","date_gmt":"2018-10-04T15:00:59","guid":{"rendered":"https:\/\/realestatetalk.com.au\/?p=22876"},"modified":"2018-10-05T01:00:59","modified_gmt":"2018-10-04T15:00:59","slug":"the-perfect-postcode","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/the-perfect-postcode\/","title":{"rendered":"The Perfect Postcode"},"content":{"rendered":"<p>Big data is seeping into almost every aspect of business today, and property investment is no different. From estimating market value to predicting capital growth, digital analytics is now being increasingly used to make investing less risky for Australians.<\/p>\n<p>Jeremy Sheppard is among the pioneers of such technology \u2013 for almost 10 years his organisation has been fine-tuning an algorithm that interprets big data to identify the suburbs across Australia with the most promising capital growth prospects. \u201cIt\u2019s based on the fundamental law of supply and demand because, essentially, they are the only two drivers of price growth,\u201d says Sheppard, co-founder of property research platform LocationScore.<\/p>\n<p>\u201cSome people will ask about population growth, economic activity, infrastructure development, and so on, but all of those things affect supply and demand, so, theoretically, if you gauge supply and demand, you\u2019re automatically taking into consideration all of those other things.\u201d<\/p>\n<p>While tracking the relationship between supply and demand may seem like a manageable task for investors, Sheppard says it can actually be incredibly difficult to pin down. \u201cIt sounds like you only have two things to research: supply and demand \u2013 but the problem comes when you try to score a somewhat vague concept in an objective, consistent and numerical manner,\u201d he says.<\/p>\n<p>\u201cHumans simply cannot acquire or process the enormous amount of data required to do so.\u201d In order to do what humans can\u2019t, LocationScore\u2019s algorithm tracks eight key indicators, which are typically found in areas where demand exceeds supply.<\/p>\n<h2><em>&#8220;It\u2019s a bit frightening to think of buying a half-a-million-dollar asset in a part of the country you\u2019ve never even heard of&#8221;<\/em><\/h2>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-22877 size-full\" src=\"https:\/\/i0.wp.com\/realestatetalk.com.au\/wp-content\/uploads\/2018\/10\/JeremyS.jpg?resize=661%2C471&#038;ssl=1\" alt=\"\" width=\"661\" height=\"471\" \/><\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"alignleft wp-image-22878 size-full\" src=\"https:\/\/i0.wp.com\/realestatetalk.com.au\/wp-content\/uploads\/2018\/10\/JeremyS3_table.jpg?resize=341%2C895&#038;ssl=1\" alt=\"\" width=\"341\" height=\"895\" \/>However, each indicator has a different level of impact on the property market, so the algorithm weights them accordingly before scoring every suburb across Australia on a monthly basis.<\/p>\n<p>\u201cBasically, LocationScore filters out 99% of suburbs around Australia that are not worth looking at so investors can target their own research to the remaining 1%,\u201d Sheppard says.<\/p>\n<p>The platform is particularly useful for investors who are looking to diversify their portfolios and purchase property interstate, or even in an area they\u2019re just not familiar with.<\/p>\n<p>\u201cMost investors understand it\u2019s highly unlikely that the best location will be in their own backyard, but it\u2019s a bit frightening to think of buying a half-a-million-dollar asset in a part of the country you\u2019ve never even heard of,\u201d Sheppard says.<\/p>\n<p>\u201cThis is the perfect safety net because you immediately know you\u2019re not going to be looking at any disaster areas, only the most promising suburbs.\u201d<\/p>\n<p>The technology also has the ability to counteract bias that holds many investors back, says Sheppard.<\/p>\n<p>\u201cPeople are often reluctant to invest in areas with a low socio-economic demographic, but those areas aren\u2019t exempt from capital growth, and even booms,\u201d he says, pointing to Sydney\u2019s Mount Druitt as the perfect example.<\/p>\n<h2><em>\u201cLocationScore filters out 99% of suburbs around Australia that are not worth looking at\u201d<\/em><\/h2>\n<p>While it\u2019s known as the location of controversial documentary Struggle Street, Mount Druitt saw median house prices soar 73.5% in the five years to May 2017, according to data from Domain Group. \u201cThe advantage you get from looking at purely objective data is that you\u2019re freed from the bias you may have against certain stigmatised suburbs,\u201d Sheppard says.<\/p>\n<p>Despite big data\u2019s potential to point investors in the right direction, he says some people remain reluctant to try it because they\u2019ve been burned in the past.<\/p>\n<p>\u201cSome of the past predictions have left a bad taste in investors\u2019 mouths,\u201d Sheppard says, recalling one enterprise that launched a so-called predictive algorithm around 10 years ago.<\/p>\n<p>\u201cThey picked a lot of markets that were supposed to grow, but the predictions turned out to be really bad. Of course, it\u2019s normal for new technology to have a few teething troubles, but investors don\u2019t want to be the guinea pigs.\u201d<\/p>\n<p>In order to establish trust, Sheppard thoroughly tested the LocationScore algorithm, comparing it to a bevy of established industry experts.<\/p>\n<p>\u201cI wanted to see how the algorithm performed compared to the experts, so I did some analysis of past predictions and was astonished to find their typical success rate was in the range of around 25\u201345%,\u201d he says. \u201cBy success, I mean the ability to predict suburbs that outperform the national average growth rate \u2013 none of them could actually do that consistently.\u201d<\/p>\n<p>In comparison, over a one-year growth period, 86.67% of the top suburbs selected by LocationScore since 2012 outperformed the national growth average.<\/p>\n<p>While the success rate gradually drops over a longer time period, it stills remains impressive, sitting at 85.88% after two years, 83.08% after three years and 77.04% after four years.<\/p>\n<p><strong>THE 8 INDICATORS<\/strong><\/p>\n<p><strong>1. Days on market<\/strong><br \/>\nAverage days a property remains for sale in a particular market<\/p>\n<p><strong>2. Vendor discount<\/strong><br \/>\nThe difference between the original asking price of a property and the eventual sale price<\/p>\n<p><strong>3. Auction clearance rate<\/strong><br \/>\nPercentage of properties sold under auction conditions<\/p>\n<p><strong>4. Renters: owner-occupiers<\/strong><br \/>\nNumber of owner-occupiers versus renters<\/p>\n<p><strong>5. Vacancy rate<\/strong><br \/>\nCurrent percentage of vacant properties for rent<\/p>\n<p><strong>6. Rental yield<\/strong><br \/>\nRental property income as a percentage of its value<\/p>\n<p><strong>7. Stock on market<\/strong><br \/>\nNumber of properties for sale at any time compared to the total property count in the market<\/p>\n<p><strong>8. Online search interest<\/strong><br \/>\nLevel of interest search activity compared to the number of properties for sale or rent in a suburb<\/p>\n<p><strong>ABOUT THE EXPERT<br \/>\n<\/strong><\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"wp-image-22879 size-full alignleft\" src=\"https:\/\/i0.wp.com\/realestatetalk.com.au\/wp-content\/uploads\/2018\/10\/JeremyS2.jpg?resize=246%2C289&#038;ssl=1\" alt=\"\" width=\"246\" height=\"289\" \/><strong>Jeremy Sheppard\u00a0<\/strong>is co-founder of<br \/>\nproperty research platform LocationScore.<br \/>\nFor more information about LocationScore\u2019s<br \/>\ncompletely impartial suburb shortlisting tool,<br \/>\nvisit\u00a0<a href=\"http:\/\/www.locationscore.com.au\/\" rel=\"nofollow\">www.locationscore.com.au<\/a>.<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Big data is seeping into almost every aspect of business today, and property investment is no different. From estimating market value to predicting capital growth, digital analytics is now being increasingly used to make investing less risky for Australians. Jeremy Sheppard is among the pioneers&#8230;<\/p>\n","protected":false},"author":176692473,"featured_media":22880,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[13,25,31],"tags":[70],"class_list":["post-22876","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-latest-story","category-sponsored-channels","category-your-investment-property","tag-featured"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.6 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>The Perfect Postcode - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/the-perfect-postcode\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Perfect Postcode - Realty Talk\" \/>\n<meta property=\"og:description\" content=\"Big data is seeping into almost every aspect of business today, and property investment is no different. 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