There’s an assumption made by too many investors that improved infrastructure always equates to higher property prices.
But government promises to build a six-lane highway, a railway station or a hospital does not automatically mean the surrounding area has just become bargain territory over which you should swoop.
The idea such multi-million-dollar improvements must supercharge home prices is based on the false premise that government investment is the most important thing affecting price growth. But it is not.
Instead, changing demographics are a much more powerful indicator.
Property prices increase where people want to live. As an investor, you want to operate in areas where residents enjoy stable employment and wages growth.
This attracts affluent buyers who are prepared to pay increasing amounts to live in the area. And the inability of local supply to meet this demand underpins any rise in property values.
If new amenities such as a light rail system or a school attract affluent buyers, that’s excellent news. But it’s the demography change that creates high rental income and decides the capital growth of an investment property.
Experienced investors will research the demographic trends and consider how they might be affected by any new infrastructure project.
A new university will bring students, lecturers and those who provide services. A hospital, on the other hand, may serve only those who live in the area. Any new employment would likely be insufficient to have an impact on property prices.
As an experienced local agent, I have worked with many investors with long-term strategies.
Together, we look at the potential market for tenants as well as the prospects for capital growth. Consideration is given to any promised government project for the area, but only in the context of the demand it might generate for local housing.
Here are some basic guidelines for investing in areas with promised improvements to services.
- Prioritise areas where residents have “above average” wage growth.
- Do not assume cheap areas or property are suitable investments.
- Always consider local market trends and prevailing economic confidence.
- New government projects can lead to higher property prices, but only if they attract new residents with stable employment and wage growth.
- A new freeway or rail line can spike property prices for a year or two, but then level off.
- Densely populated areas often produce the best capital growth, as you can be confident of ongoing demand for local property.
- Selecting suburbs popular with high migration levels can provide capital growth and well as steady rental income.
- Watch out for any impending, large-scale releases of apartments by developers, as these can depress prices in the short- to medium-term. In those situations, you might want to time your purchase strategically.