Should you continue investing in Australia’s major capital cities?
Aside from investing in properties for 17 years, Positive Real Estate’s Sam Saggers also spends his time running one of Australia’s largest investment companies, through which he helps other people start and maintain their wealth-creation journeys. Some of the most popular inquiries he gets are about capital cities.
Sam personally checks the different suburbs across the country to research about growth drivers and how they influence investments, particularly property as an asset.
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Among the most popular areas for property investment are Sydney, Melbourne, Brisbane, and Perth, where population continuously grow.
According to the property professional: “Sydney, Melbourne, Brisbane, and Perth are getting all the people. In 1986, Adelaide and Perth were the same size. Today, Perth is twice the size of Adelaide.”
“[Those are] the big four for me. I just link it to what Australia is up to and where they're going to put the population because the population becomes the taxpayer, the taxpayer creates the revenue, and the revenue creates the infrastructure, and the infrastructure creates the jobs.
“You follow where the people are going because everything else follows. If you tend to follow the marketplaces, which are sort of not being invested within, well then, your investment can lag with their economics,” he added.
He shares some of his insights about major capital cities and whether it’s a good time to put your money in these areas:
Hobart, the capital city of Tasmania and its “shining light”, has seen impressive capital growth periods in recent times. However, the increase of property values has not been as huge.
“We do need to take into consideration that property values are … sort of low there to begin with, so some of those 10 per cent growths on a $300,000 property is [just] $30,000,” Sam explained.
While there are good opportunities in Tasmania, the property professional believes that it’s best to stick to Australia’s “world cities”, which are Sydney and Melbourne, as well as its “new cities”, which are Perth and Brisbane.
According to him: “Australia's business plan is to fill those cities with people. So, from a safeguarding point of view, in a downturn, Sydney, Melbourne, Brisbane, Perth are probably your better choices.”
Last year, over 100,000 people moved to Melbourne while only 1,400 moved to Tasmania. Some returns and short-term growth may have been good in the area, but from a long-term point of view, your investment might be safer somewhere else.
Sam shared: “Most of the locals have been waiting 15 years for just a little bit of equity to come into their lives. If you ask [them] ... where they're investing, I can assure you it's actually on the mainland because they know how long it was between drinks in ... Hobart.”
“I don't want to put a dampener on it. Hobart's a lovely area and if you can get into the right pockets, I'm sure there is money to be made anywhere,” he added.
Darwin has been an area of growth in 2006 to 2008—a success that has often been linked to the mining market era. However, over the last few years, the area has not done as well as it has in the past.
According to Sam: “Back [in] ... 2006, 2007, 2008, Darwin doubled in value … People got in and there was this sort of sawtooth market. Things shot up in value, and then, things declined in value as well.”
Property investors will do well to remember the impact of population on the growth of their investment. Darwin only has 100,000 people contributing to its economy—a stark difference from Sydney’s 5 million-population.
“It's 50 times the marketplace to Darwin, and you can still probably buy in Sydney somewhere for the price you can enter the Darwin marketplace,” Sam said.
Among Western Australia’s cities, Perth shines as an area that could rival the beauty of Sydney, according to Sam. Its natural beauty, coupled with the fact that it’s a very liveable area, makes Perth an interesting marketplace for property investment.
The city’s property market has recently reached its bottom and is expected to recover soon, giving buyers a chance to acquire prime real estate at affordable prices. Property investors can take advantage of the upcoming upswing by purchasing properties in good locations and holding their assets until the market peaks once again.
Sam said: “What you are really buying today is proximity. Don't ... expect capital growth immediately … [Just] get a fantastic location [because] you can do what you want to real estate—you can develop it, you can renovate it, you can subdivide it, but you can never change a property's location.”
“In Perth, without question, you can buy some gun suburbs right now at a really affordable rate and get some of the most prime real estate within Perth. The market has been so subdued ... It is a buyer's marketplace.
“You can buy absolute riverfront, absolute city front … close to the beach … [and even in] some of the most expensive suburbs … either within housing or within apartments,” the property professional added.
At the moment, 26 per cent of all sales in Perth is through young people who are starting their investment journey or first-time homeowners. Sam believes that this is a healthy sign that people will be staying in Perth for the long-term and its population will only continue to rise through the years.
He said: “Perth is reinventing itself … It's opened up its city to become a 24-hour city. It changed its liquor licensing rules … opened its new cricket and football stadium … [started] investing in urban renewal precincts within the city realm … and … in education and health, which, I think … will start to ... draw more people to Perth,” he explained.
“Perth [is also] Australia's major city within close proximity to your Singapore, and your Malaysia, and ... the Asian economy. There is a lot of capital that is linked to Perth through Asia and, I think, it will become a property powerhouse once again,” Sam explained further.
In Sydney, you can’t buy a two-bedroom unit for $400,000 or a house for $800,000 anymore if you want it close to the city centre. Affordable properties would take a 60-km drive from the central business district.
On the other hand, in Perth, you can be six kilometres from the CBD and still find good and affordable real estate.
“[It’s] not about getting capital growth in six months time and recycling equity and trying to be all things property. It's about, ‘Hang on a minute—we can buy a property today on a marina where you get a boat mooring looking at the most beautiful view of the Swan River and the most beautiful view of the city. Tell me where you can do that anywhere else?’ ” Sam concluded.
Tune in to Sam Saggers’ episode on The Smart Property Investment Show to know more about his take on the so-called property crash as well as his advice to investors about the ‘big three’ points he looks for before purchasing a property.
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