Nila Sweeney

Despite the recent drops in property prices across the country, high capital growth is still occurring in some areas. Genavieve Zoeller reports.

The saying ‘capital growth is king’ has been the mantra of many a property investors for some time, because it’s usually followed by the tag line ‘because property prices double every seven to 10 years’.

Although this is true over time, the dire state of the global economy has prompted property investors to ask a very important question: is capital growth still achievable in the face of continual downward pressure on property prices?

Angie Zigomanis, senior consultant at BIS Shrapnel, says investors are right to be worried.

“Capital growth over the next 12–18 months is going to be relatively weak given the economic environment. So it is a risk trying to buy in now to try to flip something in the next 12 months,” he says. “Investors need to be looking at least medium term to long term in order to achieve some capital growth going forward.”

If you’ve got the buying capacity, now is by far the best time in a long while to take your property portfolio to the next level, Zigomanis says.

“Out of pocket expenses are considerably less in 2009 thanks to higher rental incomes and lower interest rates,” he says. “Investors should take the opportunity to buy now and pay down the debt on their property while it’s cheaper to do so. Then when the market begins to rise again, they can draw out that equity and set themselves up well for the future.”

However, Zigomanis points out that there will always be suburbs that will flourish in a tough market. The key is to ensure you buy something that ticks all the boxes.

Fundamental drivers such as infrastructure, affordability, and supply and demand have helped a number of suburbs buck the downward trend over the past 12 months, with some areas actually achieving phenomenal growth of around 50%, according to an RP Data report.

“These are very bullish levels of growth,” says Cameron Kusher, senior research analyst for RP Data. “But there will be those suburbs that no matter what the economy throws at them or what the wider property market is doing, they’ll achieve these exceptional growth rates.”
 


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Growth drivers
Lifestyle factors
Properties that are located near the city, the sea or areas featuring views have always performed well and achieved high capital growth. However, they also tend to come with a higher price tag. As a result of the recent financial crisis, these suburbs have suffered due to falling demand. “This high-end market is subject to cyclical movements in the economy. Less people can afford to buy in the market during hard times,” Zigomanis says. “Those buying into the higher end lifestyle areas will need to adapt their expectations, because there is still a bit of uncertainty surrounding capital growth in the short to medium term.”

However, in the short term, the lower to middle priced lifestyle areas will be flooded with demand and achieve the most capital growth, Zigomanis says.

“You’ve got prices that didn’t go up over the last two to three years in that part of the market and they’re due for a rise,” he continues. “They’re also much more affordable today than last year.”

Good infrastructure
The best performing suburbs always have an established infrastructure to service the demands of the residents in the area.

Kusher says positioning yourself near existing or future infrastructure projects is a good strategy, as these can greatly boost the value of your property.

“As capital cities continue to grow, there is going to be more demand for those well located suburbs within 20km of CBDs with good train, bus and freeway access,” he says.

For example, Coolangatta has greatly benefited from the Tugun Bypass, which has eased traffic congestion to the area since it opened early to mid-2008. The housing market there has grown 40.48% over the past 12 months to January this year, according to Kusher.

Peter Koulizos, Coordinator at Property and Share Investment, points to areas such as Wynnum, Lota and Birkdale in Brisbane as examples of suburbs that are likely to see surge in demand, thanks to the Southeast Queensland Regional Plan 2009-2031. “In Brisbane good rail infrastructure is becoming essential for capital growth, because their traffic problems are getting worse day by day,” he says.

“The government is pouring lots and lots of money into locations close to major transport nodes, and they’re also offering re-zoning opportunities as well, which is great for investors,” says Koulizos.

“If you have a house in Wynnum a few hundred metres from the train station and there is only one house sitting on the site, new changes to zoning mean that you could potentially increase it value by putting four dwellings on that block.”

Gentrification 
Suburbs that are going through gentrification could also signal an impending growth spurt in the area. These suburbs, previously considered undesirable due to their working class roots and bad reputation, are now being targeted by buyers looking for a cheaper property close to the city or a prime suburb.

“These suburbs have not been highly sought after in the past because of the people that lived in the area and in some cases the industry in the area,” Koulizos says. “But when the people shift out of the areas due to increasing rents and house prices, and industry decide to relocate their best feature is unveiled – proximity to the city.”

As a case in point, Koulizos points to Erskineville in Sydney, Braybrook in Melbourne or Thebarton in Adelaide as inner city suburbs that are being gentrified.

“There are some classic telltale signs to let you know when these suburbs are beginning to turn around and go through that gentrification,” he says. “Homes in the area are being renovated and repaired, shop fronts are being updated, local council is working on the retail and lifestyle features, housing commissions are being relocated and the State or Federal Governments are approving and constructing new roads and upgrading tram or train lines.”

The type of buyers moving into these areas is another key indication that the reputation has started to take a turn for the better. In his research to find the best performing suburbs, Koulizos says he often looks at the local shopping centre car park for signs that more money is moving into the local area.

“The suburbs may still be a little run down but you’ll notice, by looking at the cars that residents drive, that some young professionals for instance have moved into town, driving their Audis and BMWs. They just haven’t got around to fixing their lovely period homes,” he says.

Koulizos adds that an example of an area which has already gone through this process is Richmond in Melbourne. “Back in the 1960s and 1970s Richmond was popular with criminals and industry, and so the properties in the area was run down,” he says. “But because of its proximity to the city it slowly went through that gentrification period and the socio-economic demographic living in the area changed, lifting property values dramatically in the process,” he says.

Affordability
Kusher says the bulk of action in the current market is occurring in the more affordable sub $500,000 price ranges across the country.

“This will continue, particularly until the end of June when the First Home Owners Grant boost finished. Post June conditions are starting to look good for investors in this price range as well,” Kusher says. “If you’re looking to get capital growth in the next three- to five-year cycle, it will be achieved in the bottom end where there is scope to catch up.”

To increase your chances of buying in the right suburb, Zigomanis says make sure it has the key drivers such as prime location, good infrastructure and high-quality public transport, which will make it a good investment.

“You need to buy with these characteristics so you get good tenant demand on top of capital growth. This means buying close to the CBD, train lines and major transport corridors, and possibly close to employment hubs and universities to keep tenant demand up,” he says.

Kusher says buyers need to concentrate on areas that are lagging behind compared to their neighbours and find out why. If there is no reason why it should be, it is only a matter of time before affordability pushes buyers into the areas from surrounding hot spots.

“In Crows Nest for instance, there is a lot of commercial usage and the houses are quite small, but it still has that north shore address and is next door to North Sydney and the CBD. It also has all of those desirable amenities only at a lower price tag and that represents good value,” Kusher says.

 

Fastest growing suburbs (12 months)

Suburb

State

Property type

Number sold

Median price ($)

Quarterly growth

12-month growth

GREENWICH NSW Unit

30

490,000

n.a

49.85%

TERINGIE SA House

11

830,000

n.a

49.55%

DALLAS VIC Unit

10

222,500

0%

48.33%

UNDERDALE SA Unit

33

340,000

4.94%

47.83%

MCMAHONS POINT NSW House

12

1,675,000

-3.18%

47.45%

NORTH LAKES QLD Unit

30

460,920

16.69%

47.26%

TRUNDING QLD Unit

16

121,427

30.27%

47.18%

PARAFIELD GARDENS SA Unit

25

262,500

-0.94%

46.24%

PORT HUGHES SA House

11

400,000

14.61%

45.45%

SALISBURY QLD Unit

11

485,000

0%

44.78%

MIDDLE RIDGE QLD Unit

11

300,000

n.a

44.58%

QUEANBEYAN EAST NSW Unit

11

365,000

-1.35%

44.55%

SOUTH HEDLAND WA Unit

13

455,000

0%

44.44%

UNDERWOOD QLD Unit

47

367,500

0.07%

44.12%

COOLBINIA WA House

12

1,331,000

33.1%

43.12%

RIVER HEADS QLD House

33

415,000

18.57%

43.1%

FERRYDEN PARK SA Unit

23

310,000

11.11%

42.53%

WALKERVILLE SA Unit

26

431,475

2.74%

42.4%

BANJUP WA House

10

1,329,000

10.75%

41.38%

WEST LAKES SA Unit

58

465,000

19.85%

41.31%

KINGAROY QLD Unit

28

211,000

0%

40.67%

COOLANGATTA QLD House

16

885,000

20.82%

40.48%

SALISBURY SA Unit

85

189,000

2.72%

40%

CAULFIELD EAST VIC Unit

12

352,500

5.22%

39.88%

KENSINGTON SA House

12

535,000

11.46%

39.38%

OXLEY QLD Unit

11

345,000

8.15%

39.11%

TENNYSON QLD House

11

697,500

-7.46%

39.08%

TOORAK GARDENS SA Unit

25

326,000

8.67%

38.72%

PORTSEA VIC House

35

1,455,000

-3%

38.57%

JINDABYNE NSW House

12

482,500

11.56%

37.86%

LOCKHART NSW House

12

120,000

11.63%

37.14%

MOUNT EVELYN VIC Unit

13

344,000

18.62%

36.92%

MURWILLUMBAH NSW Unit

16

175,000

31.09%

35.66%

IRYMPLE VIC Unit

12

194,500

2.10%

35.30%

ST ANDREWS VIC House

11

500,000

1.52%

34.68%

SOUTH HEDLAND WA House

58

520,000

3.48%

34.37%

MOUNT HAWTHORN WA Unit

11

604,000

0.33%

34.22%

ROSEHILL NSW Unit

21

305,000

2.52%

34.07%

ECHUCA SOUTH VIC House

17

410,000

12.33%

33.99%

GILGANDRA NSW House

38

144,000

10.77%

33.95%

DUBBO NSW Unit

50

183,500

17.63%

33.21%

MELTON WEST VIC Unit

19

238,000

3.03%

32.59%

APPLECROSS WA House

34

2,250,000

7.14%

31.96%

TAMARAMA NSW Unit

26

880,000

3.23%

31.34%

EAGLEMONT VIC House

25

1,205,000

0.29%

30.62%

BOX HILL VIC Unit

83

377,500

0%

29.73%

NORTH BEACH WA Unit

18

837,500

19.64%

28.85%

KALGOORLIE WA Unit

16

297,000

6.07%

26.38%

KARAWARA WA House

15

718,000

-1.31%

25.74%

EAST FREMANTLE WA House

39

1,250,000

0.81%

22.55%

Source: RP Data

Top performers
NSW – Rosehill

  • Good public transport
  • Growing infrastructure
  • Access to amenities
  • Lifestyle aspect
  • Proximity to CBD
  • Growing population

Leafy Rosehill, in Sydney’s west, experienced almost 35% capital growth in unit prices over the 12 months to January this year, largely thanks to increased amenities and infrastructure being injected into the area.

Lisa Surian, director of Raine and Horne – Parramatta, says a train line that now links Rosehill to the northwestern and southwestern areas of Sydney from Carlingford to Clyde has been a big growth driver for the area. In addition to this, she says the presence of good public schools has encouraged renting families to buy in the area, pushing growth up significantly in the last year.

“There are a lot of families that are renting in the Rosehill area so that their kids can get a good education,” Surian says. “Now that rents are increasing and buying conditions are getting better, these families are buying into the area so they don’t disturb their kids’ education.”

Surian says Rosehill also has a large number of immigrants who set up base renting in the suburb because of its close proximity to good amenities and the employment hub of Parramatta.

“We’re at a stage where rental property vacancies are less than 1% in a rental market which is continuing to firm up. Yields are around 5%, which is a great incentive for investors,” she says. “Buyers can pick up a two bedroom unit for between $320,000 and $360,000 renting for $330–$350 a week.”

Surian says investors should buy into Rosehill with a long term perspective. “You can’t just come into the market and out again expecting to achieve huge amounts of growth.”

Suburb

State

Property type

Number sold

Median price ($)

Quarterly growth

12-month growth

Weekly median advertised rent ($)

Gross rental yield

 Rosehill NSW   Unit 21  305,000   2.52% 34.07%  400  6.82% 
 
QLD – Tennyson
  • Proximity to CBD
  • Growing infrastructure
  • Proximity to water
The riverside suburb of Tennyson is located just 5km from Brisbane’s CBD and has recently been boosted by the construction of an international tennis centre.

Nanette Lilley, principal and owner of Nanette Property Centre – Graceville, says the anticipation of the new centre helped boost the local house market exceptionally over the year to January. According to RP Data, Tennyson houses have grown nearly 40% over the past 12 months.

“There have also been luxury high rise units built next to the new tennis centre, priced between $900,000 to $3m plus, which has encouraged activity in other areas of the market,” Lilley says.

The Tennyson house market is a mixture of million dollar riverfront properties and lower priced homes priced between $300,000 and $400,000 renting for between $300 and $400 a week, according to Lillley.

“Now that tennis centre has gone in, there has been increased number of people into the area and the cheaper houses are in high demand. So this is going to add increased pressure on prices going forward and really Tennyson on the map,” she says.

Tennyson is a popular suburb for residents thanks to its close proximity to the Yeronga Shopping Centre and train station, both next door to the suburb.

Lilley says there is ongoing growth potential for investors especially those who want to buy existing houses in the more affordable streets just back from the river front and renovate for profit.

 

Suburb

State

Property type

Number sold

Median price ($)

Quarterly growth

12-month growth

Weekly median advertised rent ($)

Gross rental yield

 Tennyson QLD  House 11   697,500 -7.46%  39.08%   380 2.83% 
SA – Kensington
  • Public transport
  • Access to amenities
  • Proximity to CBD
  • Lifestyle aspect

Adelaide’s rising star, Kensington has experienced a substantial boost to its median house price over the past 12-months to January. The suburb is located just a short distance from the city (around 4km) and is considered a haven for lifestyle features and amenities.

Max Wundersitz, director of Ray White Norwood, says dwellings in Kensington are a mixture of older style single row cottages and home units. Due to the short supply of dwellings in the suburb, the high demand of late has been pushing prices forward.

“Buyers want to buy in the suburb because it has two good schools, great shops, pubs and cafes, and they can just walk or ride their bikes into the city,” he says. “We also have Norwood nearby which holds markets and festivals all year round and these are very popular.”

Wundersitz says buyers in Kensington’s housing market are willing to pay a premium to secure an address close to the highly regards local public schools.

“There has always been sound growth in Kensington and it will continue to be a sounds investment into the future,” he says.

Some of the more popular streets are Bridge Street and High Street.

 

Suburb

State

Property type

Number sold

Median price ($)

Quarterly growth

12-month growth

Weekly median advertised rent ($)

Gross rental yield

 Kensington SA  House  12  535,000  11.46%   39.38% 350  3.4% 
WA – East Fremantle
  • Growing infrastructure
  • Undersupply of housing
  • Expanding resource sector
  • Growing population
  • Proximity to water

Coastal mining town South Hedland has been on of the few resource centres across Australia to experience capital growth in the midst of a crisis for commodities. Houses have risen 34.37% in capital growth over the past year to January, according to RP Data.

On top of this, the increased demand for workers for the upgrade of local mines has allowed rental yields to skyrocket to levels between 10–12%.

“BHP is bringing in another 3,000 workers into the town, to complete its huge expansion project here,” says Jan Ford, principal of Jan Ford Real Estate – Port Hedland and Branch chairman of the Real Estate Institute of Western Australia – Pilbara area. “So the most recent growth has come from people buying investment properties looking to take advantage of the fact that there are only 5,200 houses in Port Hedland and an overriding demand for 15,000 houses.”

In the residential hub of South Hedland, the attraction of the coastal line is an added benefit for tenants and those buying for owner occupied purposes.

Ford says the Port Hedland council has initiated a plan to ensure sustainable long term, due to the risk that the single industry in town might be affected by further economic variables in the future.

“We plan to have 10 major industries in the next 10 years including a financial services industry, a green technology industry and a bigger tourism sector,” she says.

Investors can pick up a three bedroom house for $500,000 and earn $1,000 a week in rental return. Newer houses are likely to set buyers back around $1million and bring in $2,000 a week in rental income.

Strong gentrification in the region of late makes Walnut drive and the Lawson area the best parts of South Hedland to invest in for future growth, Ford says.

“A lot of the older areas and houses are being revamped,” she adds. “South Hedland is really growing. A lot of the older houses are being revamped and the council has set aside $80 million for infrastructure and $23 million for a town upgrade in the area.”

Suburb

State

Property type

Number sold

Median price ($)

Quarterly growth

12-month growth

Weekly median advertised rent ($)

Gross rental yield

 South Hedland WA  House  58  520,000 3.48% 34.37% 950 9.5% 
 
VIC – Melton West
  • Growing infrastructure
  • Access to amenities
  • Growing population

Growth in the Melton region, 35km west of Melbourne, has been building strongly over the past five years, says Justin Carberry, senior sales consultant at Jen Gaunt – Melton. In the last year alone growth has climbed even further, with units in Melton West achieving 32.59%, in the 12 months up to January, according to RP Data.

Carberry says the southern and western areas of Melton have experienced a large amount of gentrification which has contributed heavily to the growth of property prices.

“The Government is spending upward of $15 billion on the Melton area setting it up as a big residential hub for the west of Melbourne. There is expected to be around 200,000 people living here in the next 10–15 years, so capital growth should continue,” she says. “The Deerpark Bypass has also recently opened up shortening the trip from Melton into the CBD from over an hour to around 40 minutes.”

Melton West has three high schools and three primary schools and benefits from the number of shopping centres in and outside of the suburb. The newest and biggest of the lot is Woodgrove Shopping Centre which will be built in five stages, with stage one now complete.

Increasing demand for dwellings in the area is another key growth driver for the Melton thanks to its affordability – especially in Melton West where many houses are new stock.

“You can buy a 600-metre-square block of land for between $110,000– $130,000 in Melton West,” he says. “Growth in the west of Melton is also driven by its good reputation and the fact that titled land is very scarce but there looks to be more coming onto the market in the next 12 months.”

There were 19 unit sales in the Melton West region over the year to December 2008, although the house market is where the most action was experienced. An extraordinary 251 houses have changed hands in Melton West during the same period.

Houses in Melton West are currently selling for between $220,000–$230,000 and renting for around $250 a week. Units sell for under the $200,000 mark, although a limited supply means strong competition for the stock that comes on the market.

Carberry recommends investors look at buying new houses to take advantage of depreciation. The West Lakes estate and Arnold’s creek are two very popular area of West Melton he says.

“Anywhere over the Western Freeway would be a great investment also, for those buyers who would like to capitalise on the renovation potential of existing houses priced between $180,000–$190,000.”

 

Suburb

State

Property type

Number sold

Median price ($)

Quarterly growth

12-month growth

Weekly median advertised rent ($)

Gross rental yield

Melton West VIC  Unit  19  238,000 3.03%  32.59% 250 5.46% 

Checklist for finding high growth suburbs

  1. Create a hit list of towns – experts recommend populations of around 10,000 plus due to added diversity of industry
  2. Are these towns still growing – population, median prices, rental yields, planned infrastructure or mining exploration?
  3. Check out websites and subscribe to free property data – ANZ Regional updates, RP Data suburb profiles, ABS Census data and PRD Nationwide property research updates
  4. What’s driving the economy?
  5. Look for areas with a diversified economy and multiple industry support
  6. What major industries support the area – who is the major employer and are they growing or falling apart?
  7. Check government websites – Is new infrastructure bringing traffic into or away from town? Is money being invested in the area’s amenities and services?
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