There’s a common perception that buying an affordable property is the way to go for property investors. The belief is that there will always be demand for this type of property, particularly by young families.
This has some investors buying houses in the newer or outer fringe suburbs of Perth as they read that these are some of the fastest growing locations.
It may be true that the population in some of these suburbs will double in size over the next 30 years, and they may be a great place to bring up your family, this doesn’t mean that houses in the new outer fringe suburbs make good investments.
Population growth does not necessarily translate to capital growth.
Let’s take a look at why these fringe areas might not be the investment hot-spot you were dreaming of:
While many new outer suburbs have been planned to be affordable, and may not be expensive in terms of money, they are expensive in terms with travel costs.
Residents in these areas tend to have less disposable income than people who live in more affluent suburbs, which means that these regions suffer most in tough times or when interest rates rise.
In addition, one of the big factors that enhances capital growth is scarcity, and that’s something missing in these suburbs.
Many properties look the same, and there’s always another estate with more land and similar houses just across the road.
Another reason to avoid investing in these areas is their demographics, as they don’t attract the same demand from a diversity of tenants as the inner and middle suburbs do.
Low land-to-asset ratio
Some investors buy houses because they’ve heard that land appreciates in value.
But when you think about it, when buying a new house on a block of land in one of these outer suburbs you may be paying $450,000, of which the land (the component which increases in value), could be worth much less than half – say around $200,000.
So, what’s the alternative?
While many homebuyers still would like to own a home, for them it’s the great Australian dream, an increasing large demographic of young families and older downsizers are trading their backyards for balconies and an inner suburban lifestyle.
In fact, established apartments have similar capital growth, if not better capital growth, to houses and currently, with low vacancy rates, investors are achieving higher yields for apartments.
Of course, the rental is not the most important factor; we all want properties that are going to grow in value significantly.
What it all boils down to is that as living in the leafy inner and middle suburbs grows in popularity, it will come at a cost – higher property prices and higher rentals.
For more property market tips visit the blog section of the Naked Real Estate website.