One of the tools used by Capital Edge to assess the suitability of a location for residential property investment is the Demand-to-Supply Ratio (also known as DSR). This ratio is the Demand (properties sold) divided by Supply (properties available) for a specific location. It is for properties with similar traits, e.g., 2 bedroom units with 2 bathrooms.

This is an important indicator of where a location is in the growth cycle. Let’s assume 120 properties were sold for a post code location in the past 12 months, and 12 properties are currently available. This ratio of 10 is high, which indicates the location is overheated and a premium needs to be paid to enter that market.

A very low ratio is below 1, e.g., where 50 properties were sold last year but a new development has made 100 properties available for sale. This calculates to a ratio of 0.50 indicating there is oversupply. Typically, there are lots of new properties being built and entering a market, as a result, capital growth will be limited.

This ratio uses a clearly defined property category for the location. A location consists of many different types of properties and also residential pockets that have different characteristics. It is essential to identify how a specific category of properties is performing in a location and not to just look at the overall results that are often distorted by the sale of a few large properties or a large unit development.