Why infrastructure projects matter when researching your next property investment

By Zarah Mae Torrazo 16 February 2022 | 1 minute read

Why you should consider upcoming infrastructure spending when deciding the location for your next property investment

If you’re an avid listener of podcasts that feature successful property investors (such as the Smart Property Investment Show), you may have heard time and time again that doing your due diligence is one of the secrets to effective long-term real estate investment. 

But this goes beyond doing your basic research; smart investors buy properties tipped for growth before the growth happens. Sounds simple, yet so many still get it wrong.

When investing in property, it’s then important to check the infrastructure developments in the pipeline in the area. This is because one of the key factors to affect the capital growth and rent yield potential of a property is infrastructure. Therefore, it is crucial to look at what is going on within the location that you’re planning to buy-in. 

In this article, we discuss how to research the property market by looking at infrastructure developments and how this can make a positive impact on your property portfolio. 

What is infrastructure?

Generally, infrastructure refers to structures and facilities that a country needs in order to function properly. It provides essential services that drive economic growth, employment and productivity and can be classified into three main categories: 

  • Utilities: electricity, gas, communications and water
  • Transport: airports, roads, and rail
  • Social: education centres, hospitals and medical facilities, shopping centres, and community facilities

Why is infrastructure important to investors?

When investing in real estate, it is important to select properties that are in high-growth areas. But what makes property values grow? 

Savvy investors know that the postal code isn’t what makes a property valuable. Instead, it’s the local developments and amenities in the area that matter and makes the suburb more attractive. 

Generally, the better connected and serviced the area is, the higher the demand is. This, in turn, will ultimately drive up property prices (or how much you can charge in rent if it is a rental property). 

This is why infrastructure projects (both existing and in progress) are crucial indicators regarding where increased property demand can be anticipated.

There is also historical evidence that suggests that new infrastructure projects drive growth in the local economy by creating new jobs. This, in turn, helps the population growth in an area and causes demand for housing to go up, meaning rent rates can also rise.

Not only do infrastructure projects increase employment and local property values, but they also provide indirect benefits to the community, such as consumer expenditure and social benefits of community development – all of which fuel demand.

So when you’re creating a plan for property investment, take time to check the current and planned infrastructure in locations where you are considering purchasing an investment property. 

It will help minimise your risks as it will provide some guarantee that you will find tenants, and then when the time comes to sell, the value of the property will have increased significantly over time.

Which infrastructure projects should investors focus on?

Not all infrastructure projects are made equal. 

When doing your research, you must first determine the impact of an infrastructure project. Consider the size and scale of the project to identify whether it’s likely to have an effect on demand or supply within the area. 

The nature of the project and the type of infrastructure project is also important. 

For example, an airport may be more beneficial to real estate investors compared to a roadwork construction, as an airport will provide sustained employment and demand beyond the construction period. And while a new highway or roadwork is valuable, it won’t create employment once the project is completed.

Generally, the major infrastructure developments to watch include:

  • Transportation links and roads: Road updates and transport link upgrades or development have a critical role in driving up property values, as these projects make areas more accessible. 
  • New educational developments: These include proposed university and school campuses. Good quality schools are in high demand these days, and families will do what they can to live in a school zone of their choice. Parents also don’t want to travel far to drop off their children, so the demand to live close by can play a part in the desirability of certain properties.
  • New industrial parks: These are hubs of employment that can indicate a growth in job opportunities (and, therefore, a rise in demand).
  • Parks, sporting venues and outdoor spaces: Parks, sporting venues, gyms and outdoor spaces help boost the liveability of a city or suburb. Nearby access to these can have a positive impact on a property.
  • Entertainment and shopping centres: Most people want to live close to the shops and restaurants. Being near local shops is something renters and home owners generally look for when looking for their next home. 

While the above are general infrastructure projects you can keep your eye out for, you also need to factor in a whole range of other drivers for property growth. 

Being close to a good school, shops, or the beach alone won’t automatically lock your investment property in for outstanding long-term growth.

For example, while it’s expected that the population in an area will increase with new infrastructure, it does not mean you’re looking at a certified gold mine when it comes to property investing. Read more about it in: Myth busted: Why population growth does not equal price growth

However, if you acquire a property that is in close proximity to most of this infrastructure, there’s a large possibility that you are setting yourself up for success. 

The key is to properly identify the infrastructure that will have a positive impact on your property investment. 

What about the timing of infrastructure projects?

Some property investors buy into an area during the hype of a current infrastructure project. While this puts you ahead of the curve, it can also expose you to certain risks (e.g. the project fails to push through or it is cancelled). 

On that note, it is recommended to only invest in a market with planned infrastructure once the tender has been placed and the project has received the go signal to start the works. 

Where can I find information about future infrastructure projects? 

For a snapshot of how much the federal government is planning to spend on infrastructure over the next 10 years, read our article summarising the 2021-22 budget. For further information, you can also check the federal government’s Budget Announcement page. 

If you want a closer look at the infrastructure projects in the pipeline for each state, check out the following links: 

You can also check out the official website of the local government area (LGA) or shires that you are planning to invest in, as these websites also provide local market information about the latest infrastructure developments. 

When it comes to determining the success of your property investment, researching upcoming infrastructure developments needs to be at the top of your agenda. Proposed developments have a big role to play in supply and demand as well as the income and capital growth opportunities of an investment property. 

Disclaimer: This is a general guide only and is not intended as a substitute for investing advice.

If you’re a first-time buyer looking to enter the real estate market, make sure to also check out Smart Property Investment’s brand-new white paper, Why 2022 is the right year to invest for beginners.  

For more industry expert insights on the property market, check out our amazing podcasts. Also, make sure to check our News Section for the latest property market reports, insights, news and useful tips and strategies for investors. 

 

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A property portfolio is defined as a collection of real estate investments owned by an individual, a group, or a company.

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Why infrastructure projects matter when researching your next property investment
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