Not all markets are built the same
When people talk about buying property, they often lump all markets into the same category. But in reality, there are two types of markets investors should understand. Compounding markets and trading markets.
Knowing the difference can dramatically change the way you invest and set you up for success.
A compounding market is one that grows steadily over time. Think inner-city Melbourne or Sydney’s blue-chip suburbs. These locations won’t double overnight, but over the course of 10 or 20 years, they deliver consistent long-term growth driven by strong fundamentals like scarcity, infrastructure, employment, and just great amenities that people want to be around.
Trading markets, on the other hand, are markets that tend to move in short, sharp cycles. They often run hard and fast during booms, posting rapid price growth over a short period of time, before plateauing or even falling during the years that follow.
Then they sit dormant until the next cycle emerges. Think Perth, Darwin, or even parts of regional Queensland.
So, who should buy into a trading market?
These markets are suited to investors who understand timing and are prepared to exit. If you’re looking to hold an asset for 20 years, these aren’t always the best options. But if you’re in a position to monitor the market closely, ride the growth wave, and potentially exit or refinance before things slow down, then trading markets can be incredibly powerful.
These are also for investors who might not have the equity or borrowing capacity to get into the often more expensive blue chip markets like Sydney. Trading markets are ones that are often a great first investment, and can act as a stepping stone.
In the current cycle, Darwin is shaping up as one of the clearest trading markets. Rents are soaring. Vacancy rates are at 0.6%, and yields of 6% or more are achievable in some areas.
After years of underperformance, it has all the hallmarks of a market turning around. The fundamentals may not be as strong as an inner ring Melbourne suburb, but that’s not the point. In a trading market, you’re focused on making the most of the cycle.
We’ve seen this in Perth. Investors who got in around 2020, when sentiment was still lukewarm, have now seen significant growth. But Perth is a classic case of a market that booms hard, then stalls. Historically, Perth runs up quickly and then trades sideways for many years. In fact, Perth peaked in 2007 and didn’t exceed that peak again until 2020. That’s 13 years of sideways movement.
So it is important that you have a plan going in if you want to make the most of a trading market. Know your numbers. Watch the data. When prices have moved significantly, rents begin to level off, and listing volumes start to rise, that might be the time to consider taking profits.
Buying into a trading market still requires discipline. You want to look for signals like solid rental demand, a drop in vacancy rates, infrastructure spending, or a policy change that creates investor momentum. You also want to avoid entering late, when everyone is already piling in.
You also don’t want to be chasing the hottest market on the news. It’s about positioning yourself early and having the conviction to move when the data stacks up, even if the headlines haven’t caught up yet.
Ultimately, the biggest risk with trading markets isn’t the market itself. It’s not having a strategy.
If you’re entering these markets without an exit plan, you may end up holding an asset that underperforms for years. But if you understand the strategy and you’re clear on why you’re buying, when to exit, these markets can be an accelerator for building wealth.
Right now, Darwin is showing all the signs. And if history is any guide, the time to act in a trading market is before everyone else realises it’s moving.
Because by the time everyone is talking about it, you’ll want to be already planning your next move.