Spotting an out-performer
The key to prosperity in property investment is buying in the right places.
It's clear from the figures I presented in my previous column that capital city price growth has been ordinary at best in the past 10 years. Darwin (averaging 8% a year) and Perth (7%) have been okay, but five of the eight capitals have growth rates no better than wages growth or the rate of inflation.
Sydney has averaged just 3.8% per year in the past decade, despite the lift in the past 18 months.
Would you invest in real estate on those numbers? I would suggest no – not if those growth numbers applied everywhere.
The secret is finding places likely to deliver out-performance. To give you an idea of what's possible, here are some of the results of places we identified one to two years ago as good places to buy for future growth.
Toowoomba in regional Queensland is a standout example. In 2012, I started shouting about its prospects to rise from ordinary performance to out-performance. In the past 12 months, the potential has started to be realised.
Many Toowoomba suburbs, which have long-term growth averages of around 6% per year, have recorded double-digit growth in the past 12 months.
East Toowoomba, Harristown, Mount Lofty, Newtown, North Toowoomba, South Toowoomba and Toowoomba City have all registered growth ranging between 12% and 19% in 12 months.
You would not have poured money into Toowoomba based on its historic performance, but with real estate investment it's the future that matters.
Another Queensland regional city with a poor recent history but a glittering future is Cairns.
Some Cairns markets, particularly unit markets, still have pricing lower than five years ago. Others have averaged less than 1% per year in growth since 2009. That reflects weakness in the local economy and developer over-supply.
The future, however, looks very different. Cairns is rapidly transitioning from an economy overly reliant on tourism to a place where a massive infrastructure spend is broadening and strengthening the base.
That, plus previous price decline and the highest rental yields in Australia, has made Cairns an attractive proposition for investors.
In the past 12 months, Cairns has started to deliver. In terms of median price growth (based on Australian Property Monitors data), here are some of the results in Cairns suburban markets:
- Bungalow houses up 18%
- Edge Hill houses up 14%
- Woree houses up 16%
- Yorkey's Knob houses up 15%
- Cairns City units up 19%
- Earlville units up 19%
- Edge Hill units up 12%
- Holloways Beach units up 27%
- Manunda units up 30%
- Woree units up 27%
- Yorkey's Knob units up 23%
In 2012 and 2013, I suggested the Swan City precinct of Perth as a place with appeal from the collective viewpoints of location, lifestyle, affordability and infrastructure spending. It's shown pretty solid growth in the years since - including, in the past 12 months, double-digit growth in Aveley (14%), Ballajura (11%), Caversham (15%), Lockridge (12%) and The Vines (13%), well ahead of city averages.
Monash City has appealed as a middle market location with growth prospects in Melbourne. About a year ago we included it in our Top 10 reports and since then multiple suburbs in this municipality have delivered double-digit growth in median prices, ranging from 12% in Clayton to 23% in Glen Waverley – well above the average (about 8%) for metropolitan Melbourne in the past 12 months.
There are many other examples, spread across the major cities and regional Australia.
It serves to highlight the shallowness of most commentary about Australian real estate, especially by economists who continue to speak in terms such as: "Australian house prices have risen 9% in the past year".
In most places, the growth has been less than that – but in select locations with the right growth drivers, the upside has been considerably more.
Finding them is the essence of good investing.
