It sounds like an investment dream: a series of the best property locations in Australia, where real estate prospers through thick and thin. They’re known as the ‘stayers’ or ‘proven performers’ of the property market – but precisely where do we find these investments that just keep on giving? Sarah Megginson reports.
There are many ways to categorise real estate investments, and for every different type, you can find an expert spruiking its features.
Whether you’re looking at mining hot spots, capital city high-rise apartments, high-yield regional property or house and land packages in the suburbs, there are countless investing opportunities available to the average investor – and each one comes with its own risks and advantages.
However, it is possible to narrow down your property search to established high-performers that continue to show property price growth, even in a downturn. Proven performers, as they are known, are areas whose unique and desirable characteristics consistently provide high capital growth on a regularand steady basis.
George Kafantaris, director of Metropole Brisbane, says proven performers are the only type of property that he seeks for his clients as they have strong, consistent demand which provides steady, reliable and high returns on investments.
“We look for proven stayers, which are those properties that perform regardless of what’s happening in the market, and these by definition are usually the suburbs that have got alot of growth history behind them,”he explains.
“Throughout history, there have always been reasons why property should not go up in value. We’ve had the GFC, and if you go further back, we had September 11. In the 1980s and 1990s we had extremely high interest rates of 20%-plus, and we had the affordability crisis. If you go back even further, we had immigration issues and the highest unemployment on record. Throughout all of these times, people kept saying, ‘property prices cannot keep on going up’. But they have.”
Hot spots vs proven performers
So what’s the difference between a property hot spot and a proven performer?
Definition: An area that’s expected to deliver capital growth returns that exceed the broader property market over a short period of time due to new transport proposals, new government investments, new infrastructure projects such as those seen in mining towns, or new town planning changes.
It may be an established suburb that is being gentrified, where the old is becoming new, explains Peter Koulizos, property author and lecturer. “It could be that the area is close to the city, but was previously considered to be an industrial, low socio-economic area. As the industries have gradually shifted out, the suburb has become more popular with people who seek a central location where they can easily commute to work.”
Fundamentals: Hot spots generally have the right fundamentals for values to grow, but often lack a track record to show for it. Their location also tends to be attractive to potential homebuyers or tenants.
“Hot spots should have at the very least, the basics in place,” says Koulizos, such as a good central location and a solid infrastructure framework. “For instance, it might already have the lovely old buildings and character homes that people pay a premium for, but with the opportunity to add value through renovation,”he explains.
Reason for growth: These are areas that are expected to change for the better, and at a faster pace than surrounding suburbs. The expectations of increased housing demand fuel strong interest and speculation among buyers. This in turn results in price increases that could go on for a number of months to a year, depending on the growth trigger.
“For an area to grow faster than the surrounding areas something has to change: either the demographics, the aesthetics, or via new infrastructure or services,” Koulizos says. That growth may be short-lived, however, because once the change has taken place, the region will settle back into its regular growth cycle.
However, in some cases hot spots continue to rack up strong growth and become proven performers.
Definition: An area that possesses the growth drivers required to ensure it has consistent, long-term performance year in, year out. Unlike an area that booms suddenly due to an ‘extrinsic force’, such as a special building contract for a large project or interest from tourists, proven performers have intrinsic growth drivers such as good amenities, good public transport options, good schools and are either near the city or waterfront – all characteristics that attract people to live in this suburb.
Demand for these propertiestend to be high and steady, which results in steady growthyear after year.
Fundamentals: Proven performers tend to have high demand but limited supply as properties in these areas are tightly held. They also record a population that grows faster than the national average. Residents generally have above-average incomes which increase steadily.
The suburbs also have diverse economic growth drivers and demographics.
Reason for growth: It’s all down to the simple rule of supply and demand. Demand for existing properties in these areas are high compared to the available stock.
The area’s desirability, unmatched by supply, is a perfect recipe for capital growth.
Which is the better investment?
There’s really no straight answer to this question, as the right investment choice for you will depend on several factors, including your financial situation, risk profile and wealth creation goals.
Hot spots can generate a sharp equity boost in a short period of time, such as those experienced in the mining towns. Other non-mining related hot spots can also be more affordable than the proven performers. For example, Frankston in Melbourne, a hot spot, has a median price of $310,000 compared to St Kilda, a proven performer also in Melbourne, with a median house price of $812,500.
If you have a shorter investment timeframe, a hot spot can be worth considering. As we’ve illustrated in the comparison in the box at left, a hot spot can produce a more attractive return in the short term.
But unlike the proven performers which are generally considered ‘safe’ and steady investments, hot spots such as mining towns carry considerable risks.
The short-term spike in demand could push prices up but the property may end up becoming an average market performer once the growth spurt passes. Without new economic drivers, the suburb is likely to revert to grow at an average rate compared to the rest of the market.
Therefore, if you wish to build a portfolio of quality properties that return strong dividends over the long term, then a proven performer looks likely to be the better choice.
“When I research stayers, I look for definitive reasons for actual growth; I’m not looking for short-term spikes in growth, but rather areas with long-term consistent growth in their future,” says Terry Ryder, director of www.hotspotting.com.au.
“Usually, that means the area has experienced a track record of at least some growth over the last 10 years. If it’s got that track record plus another factor – such as improving infrastructure, population growth and several industries driving the town’s employment – then that puts it firmly on my radar.”