With thousands of suburbs in Australia to choose from, picking an area with solid capital growth is like a needle in a haystack. However, there are several indictors investors can consider to shortlist potential suburbs that stand out from the crowd.
So where do you start? One way to gauge how much growth is likely to occur is to look at growth that has passed.
However, investors must keep in mind that what has passed does not necessarily equate to what will happen in the future.
Momentum Wealth’s Damian Collins points to a three year time frame as a good benchmark when looking at historical growth.
“If you want to get in, in the early stages, then the median price changes can certainly help,” he says.
If the suburb has outperformed in the past three years, recording a growth of one per cent above the growth of the city average, this should prompt the investor to ask more questions, he adds.
• Is it rejuvenating?
• Is it getting re-rated by people?
• Are the demographics changing?
As suburbs typically rejuvenate and get re-rated over a 10 year cycle, Mr Collins continues, this will enable investors to still get in early during the cycle.
Investors chasing capital growth would be very much interested in the owner-occupier appeal of an area, says Empower Wealth’s Ben Kingsley.
If they get this right, he continues, investors are likely to experience solid growth not just in the short-term but indefinitely over the long-term.
“If you’ve got an area where it’s got 80 per cent owner-occupiers, 20 per cent investors, that’s telling you that that’s got a very strong owner-occupier appeal because they’re going to pay a premium to get into that location,” Mr Kingsley says.
While investors are unlikely to bag a bargain, he believes these areas are “absolute cracking jack locations”, which is obvious when they unpack the demographics.
You’ll see that the education of people in that area is all tertiary and the incomes of those people are significantly higher than the Australian average, he explains.
Another statistical indicator to be looking at is the income growth of an area, which can be obtained from the Australian Bureau of Statistics.
Mr Kingsley ssuggests analysing the last four Census to determine whether there has been a shift in the socio-demographic trends or if the area is gentrifying.
So, where to from here?
Most investors agree that at the end of the day, statistical indicators are only the tip of the iceberg. Savvy investors will always dig deeper beyond the numbers to determine what are the fundamentals driving the area.
Here are some on-the-ground fundamentals worth drilling into:
• Major developments in the area
• Residential stock coming online
• Jobs being created
• Local Area Plans
These indicators, combined with the fundamentals, should allow you to form an educated opinion in the suburbs that are likely to outperform.