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PROPERTY KNOWLEDGE: HOW TO FIND A GROWTH AREA BEFORE IT BOOMS

By Catherine Rayward

Australia’s full of suburbs that were regarded as undesirable, before quickly transforming and seeing their house prices rocket upwards. Brunswick is just one example of this – in the last decade it has transformed from an infamous inner-city strip, to one of Melbourne’s most unique and desirable areas.

Because off this transformation, the median house value here has grown exponentially over the last few years to almost $1.2 million, according to Residex. Spotting the next Brunswick, wherever it may be, might be difficult but it’s a surefire way to find an investment that increases in value.

Here’s our advice for picking the next growth area before prices skyrocket.

LOOK FOR GENTRIFICATION

In a nutshell, gentrification is what happens when people with higher incomes move into a suburb that was previously of lower socio-economic standing.

This will raise the average income in the area, and these higher net worth individuals will spend money and time improving the suburb (whether they do so indirectly by spending money or directly via investment).

Among other things, this process causes property prices to increase rapidly. To spot gentrification in its early stages look for:

  • New trendy cafes, bars, or shops opening in previously undesirable areas
  • Older homes being renovated or large volumes of new residential buildings
  • Large infrastructure projects planned for the future
  • Property prices increasing after a long period of low growth
  • Younger, higher income people moving into the area
  • Gentrification is more common in middle and inner-city areas, and many of Australia’s capital cities have already succumbed to it. However, if you do your research and speak to local real estate agents, it’s still possible to find suburbs before they transform, while they remain affordable.

BUY NEAR POPULAR SUBURBS

If a certain area has been gentrified and developed, there’s a good chance prices would have already increased considerably. That doesn’t mean you’ve missed your opportunity. Growth often ripples outwards, and if you’ve come too late for a certain suburb’s boom, you may be in time to buy in neighbouring suburbs before they increase in price.

Look at areas that have experienced price growth and then look closer at the past and current price trends of the suburbs surrounding them. If the suburbs nearby are noticeably cheaper, there’s a good chance they will catch up in the near future. And if their prices have been relatively flat but spiked upward recently, their values could be about to start a sustained increase.

To start, search the city centre for its most affordable areas. For example, in Melbourne’s inner-ring, the cheapest area is Maidstone – it’s the only suburb within 10km of the centre that is priced at under the city’s median, according to Your Investment Property. Areas such as this are often undervalued, with considerable potential for future price growth.

SEARCH FOR MAJOR INFRASTRUCTURE PROJECTS

New or upcoming infrastructure projects, whether it’s a hospital or a redeveloped town centre, can often be a precursor to property price increases. That’s because such projects usually improve the affected suburb in some way.

For example, roads or public transport developments might make an area more easily accessible, attracting buyers from further afield. Hospitals, schools and government buildings will create employment, which is a key consideration when picking an area. Residential developments will bring new residents (possibly with higher incomes due to the relatively high cost of new builds).

To research infrastructure projects, a simple Google search will do at first (i.e Brunswick, Melbourne major infrastructure projects). If nothing of note comes up, comb council websites until you find something relevant.

ALWAYS LOOK CLOSELY AT DEMAND

Most inner city suburbs in major capital cities have run out of land on which to build, making it challenging to add new dwellings. Despite this their populations usually continue to increase, pushing up demand for housing. This demand and supply imbalance places upward pressure on prices in such areas and will continue to do so until the fundamentals change.

Finding such suburbs before demand starts to outweigh supply is a great way to find a price growth hotspot. To do so – first, look closely at the area itself. If there’s little or no vacant land left it may be difficult to add supply in future. Then, look at population growth. If the region’s population is growing quickly, demand for housing is likely to follow suit.

Forecasts and predictions are always imperfect. However, if you do your research and get the right advice from a local real estate agent you can trust – you could buy cheaply in Australia’s next boom suburb, and enjoy capital gains for years to come.

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