One state government has allocated almost $8 billion to key public infrastructure, but new research suggests property investors shouldn’t count on higher capital growth.
The Western Australian state government has invested $7.7 billion into key public infrastructure projects over the next four years, with a focus on road and rail as well as place-making projects.
Often the assumed outcome for property investors is that public spending on infrastructure projects can lead to upwards pressure on property prices through increased amenity and greater demand.
However, a new research report by Momentum Wealth, titledPublic Infrastructure Update – Impacts on local property markets, reveals that these infrastructure projects will not necessarily deliver higher capital growth for property investors.
According to the report, it is simplistic to assume that big-ticket infrastructure projects will significantly boost local property prices when in reality the capital growth might only be at market rate.
“The research report explains that the construction of large-scale football stadiums, such as the $1 billion Perth Stadium for example, typically deliver negligible price growth for nearby residential properties,” Momentum Wealth managing director Damian Collins said.
The report suggests that smaller infrastructure projects, such as the $24 million HBF Arena Upgrade in Joondalup in Perth’s north, can prove to be much more beneficial for property investors.
“As noted in our research report, these types of community projects can deliver better capital growth prospects because they’re more likely to bring tangible benefits to the area, such as additional amenity and upgraded streetscapes,” Mr Collins said.
The report also highlights that investors need to consider the less-obvious locations that are likely to benefit from new infrastructure, as these may make better investment locations.
The $49 million Ellenbrook Rapid Bus Transit System, for example, is expected to benefit residents on Perth’s north-east urban fringe, specifically Ellenbrook and Aveley, through improved accessibility.
However, the report said that the infrastructure will also help to support Morley, in Perth’s inner-metropolitan ring.
“The research report explains that Morley represents a much smarter investment location because it’s significantly closer to the Perth CBD, the supply-side fundamentals are more favourable and it has been identified by the state government as a key suburban activity centre,” Mr Collins said.
“While new public infrastructure projects can be a good indicator for future residential property price growth, investors need to be aware that they’re not necessarily a silver bullet for instant price growth.
“Other property price drivers, such as housing demand and supply, demographic shifts, private investment and changing structure plans, for example, also need to be taken into account when buying an investment property.”