One particular investor has recently invested in St. Clair and is currently looking at buying interstate, particularly in Kingston or Melton—how exactly do you choose the next best suburb to invest in?
Salah has bought a three-bedroom house in St. Clair—”southern Sydney towards Penrith, in between Blacktown on the M4 motorway”—last year because of its future development potential. He is currently doing his research on Kingston in Queensland and Melton in Victoria, and like many budding investors, he wants to know how to determine the pros and cons of a suburb for property investment.
According to buyer’s agent Paul Glossop: “[It] comes back down to your objectives, your goals, and your budget, and ultimately, I think it needs to come down to understanding what are you trying to achieve.”
He discusses the current state of the markets in particular suburbs in Australia with Smart Property Investment’s Phil Tarrant, as well as their definitions of a good investment:
Do you think Salah bought the right first property?
Paul Glossop: If that was bought last year in St. Clair, knowing how that St. Clair market has performed over the last 12 months… it's definitely slowed compared to, probably, the 2013 to 2015 timeframe, where you saw 15 to 20 per cent year-on-year growth and it probably went up 50 per cent in that two-year time frame, compounded. Last year… depending on the property type, [it’s at] 6 to 10 per cent maybe, and I think, [personally], it's slowed since and will continue to slow, as per a lot of that Western Sydney market
Is Melton a good suburb to invest in?
Paul Glossop: Melton... for those who don't know, is a western suburbs corridor of the Greater Melbourne market. Probably somewhere close to halfway between Ballarat and Melbourne CBD [central business district]. I would look at that as a market, personally. I actually know a couple of investors who probably got in that house and land stuff that's gone on out there over the last five years. Anyone who's familiar with Melton will know that there is a lot of green fields, and there's a lot of off-the-plan house and lands that have been sold and will continue to be sold because there is just a lot of space.
The recent census data was shown… that population growth will continue… However, I don't see… a big cap on how the supply can be limited in that market, close to the main infrastructures, to really build strong, long-term capital growth, as opposed to if I were to look at other markets, which might be slightly [denser].
Now, it's not saying it's not going to perform because… from what I know about Melton, it has actually had a good run the last couple years and I think it will continue to have a good steady run over the next few years, but that market for me, I think, is going to have some distinct caps, [in] as far as how much demand it can continue to sustain compared to how much supply is going to come to that market.
How about Kingston?
Phil Tarrant: I like Kingston, I bought there… You know why I bought there? My buyer's agent told me to...and, obviously, the product that we purchased, it was consistent with our strategy [which is] to buy under market value property—identifying opportunities where we can get an asset for cheaper than what the asset is worth on the market.
There are typically reasons why something has a bit of an X-factor to us—something that we can use to either manufacture equity over time or manufacture yield, and the property that was secured in Kingston very much reflected that. Lots of prospects for growth over time and a lot of the Kingston space that's in proximity to the Brisbane CBD. Transport links, rail, all the infrastructures there. We paid just north of $300,000 for that property. It delivers a really good yield and… at a point in time, we can do stuff with it, so we're happy about it, but it goes back to the fundamentals.
How would you compare and contrast Kingston and Melton?
Phil Tarrant: Kingston versus Melton—About Melton, its proximity to the Melbourne CBD, it's probably a little bit further away than what Kingston would be, but it's greenfield stuff out there, right…? What is going to put positive price pressure on property in Melton versus the same thing in Kingston? Now, [you] can't build too many more houses in Kingston, there's no space left, [but you can] knock-down, rebuild stuff… Is there a market for that? Maybe… [However], out in Melton, there's a lot of new development stuff.
Paul Glossop: If you're going to look at areas such as Melton, [look for] more green fields, where the population growth will push in and fill in over time.
Once they have chosen a suburb, how can investors identify a good property?
Paul Glossop: The properties which will ideally perform better are the properties which have the X-factor, which have potentially a larger block, which have something that can be subdivided, maybe closer to the older infrastructure. That's what I'd be looking at, as opposed to probably looking at more of the fringe stuff that will no doubt be superseded by something that looks very similar, only 200 metres away and consistently keep going as that population growth keeps sustaining.
If you're closer to where the rail is, you're closer [to] where the hospitals are, the schools, the infrastructure, the transport, you will no doubt see a historic uplift, as compared to those even 500 to a kilometre, 1.5 kilometres further out.
What would be your last advice for property investors looking to buy interstate?
Phil Tarrant: I'm very pro buyer's advocate and I've been working with my buyer's advocate since the start of purchasing a portfolio.
I use a buyer's agent for a whole bunch of different reasons. Number one is that they can do the job so much better than I can… Number two, I'm time-poor. I'm happy to pay for advice if it gives me greater bandwidth and scope to go over my portfolio quicker… Number three, and probably very importantly, is that I think that investors who use a buyer's agent versus investors that don't use a buyer's agents [are] highly advantaged because I wouldn't want to be out there buying by myself, up against professional guys... who know the market inside-out.
Tune in to Paul Glossop’s Q&A episode on The Smart Property Investment Show to know more about the right program to keep track of your property without going into depreciation, how to decide where to buy and which investment property is right for you, and how to identify opportunities.