Fastest growing suburbs

Despite the recent drops in property prices across the country, high capital growth is still occurring in some areas. Genavieve Zoeller reports.

The saying ‘capital growth is king’ has been the mantra of many a property investors for some time, because it’s usually followed by the tag line ‘because property prices double every seven to 10 years’.

Although this is true over time, the dire state of the global economy has prompted property investors to ask a very important question: is capital growth still achievable in the face of continual downward pressure on property prices?

Angie Zigomanis, senior consultant at BIS Shrapnel, says investors are right to be worried.

“Capital growth over the next 12–18 months is going to be relatively weak given the economic environment. So it is a risk trying to buy in now to try to flip something in the next 12 months,” he says. “Investors need to be looking at least medium term to long term in order to achieve some capital growth going forward.”

If you’ve got the buying capacity, now is by far the best time in a long while to take your property portfolio to the next level, Zigomanis says.

“Out of pocket expenses are considerably less in 2009 thanks to higher rental incomes and lower interest rates,” he says. “Investors should take the opportunity to buy now and pay down the debt on their property while it’s cheaper to do so. Then when the market begins to rise again, they can draw out that equity and set themselves up well for the future.”

However, Zigomanis points out that there will always be suburbs that will flourish in a tough market. The key is to ensure you buy something that ticks all the boxes.

Fundamental drivers such as infrastructure, affordability, and supply and demand have helped a number of suburbs buck the downward trend over the past 12 months, with some areas actually achieving phenomenal growth of around 50%, according to an RP Data report.

“These are very bullish levels of growth,” says Cameron Kusher, senior research analyst for RP Data. “But there will be those suburbs that no matter what the economy throws at them or what the wider property market is doing, they’ll achieve these exceptional growth rates.”
 

 

Growth drivers

Properties that are located near the city, the sea or areas featuring views have always performed well and achieved high capital growth. However, they also tend to come with a higher price tag. As a result of the recent financial crisis, these suburbs have suffered due to falling demand. “This high-end market is subject to cyclical movements in the economy. Less people can afford to buy in the market during hard times,” Zigomanis says. “Those buying into the higher end lifestyle areas will need to adapt their expectations, because there is still a bit of uncertainty surrounding capital growth in the short to medium term.”

However, in the short term, the lower to middle priced lifestyle areas will be flooded with demand and achieve the most capital growth, Zigomanis says.

“You’ve got prices that didn’t go up over the last two to three years in that part of the market and they’re due for a rise,” he continues. “They’re also much more affordable today than last year.”

Good infrastructure
The best performing suburbs always have an established infrastructure to service the demands of the residents in the area.

Kusher says positioning yourself near existing or future infrastructure projects is a good strategy, as these can greatly boost the value of your property.

“As capital cities continue to grow, there is going to be more demand for those well located suburbs within 20km of CBDs with good train, bus and freeway access,” he says.

For example, Coolangatta has greatly benefited from the Tugun Bypass, which has eased traffic congestion to the area since it opened early to mid-2008. The housing market there has grown 40.48% over the past 12 months to January this year, according to Kusher.

Peter Koulizos, Coordinator at Property and Share Investment, points to areas such as Wynnum, Lota and Birkdale in Brisbane as examples of suburbs that are likely to see surge in demand, thanks to the Southeast Queensland Regional Plan 2009-2031. “In Brisbane good rail infrastructure is becoming essential for capital growth, because their traffic problems are getting worse day by day,” he says.

“The government is pouring lots and lots of money into locations close to major transport nodes, and they’re also offering re-zoning opportunities as well, which is great for investors,” says Koulizos.

“If you have a house in Wynnum a few hundred metres from the train station and there is only one house sitting on the site, new changes to zoning mean that you could potentially increase it value by putting four dwellings on that block.”

Gentrification 
Suburbs that are going through gentrification could also signal an impending growth spurt in the area. These suburbs, previously considered undesirable due to their working class roots and bad reputation, are now being targeted by buyers looking for a cheaper property close to the city or a prime suburb.

“These suburbs have not been highly sought after in the past because of the people that lived in the area and in some cases the industry in the area,” Koulizos says. “But when the people shift out of the areas due to increasing rents and house prices, and industry decide to relocate their best feature is unveiled – proximity to the city.”

As a case in point, Koulizos points to Erskineville in Sydney, Braybrook in Melbourne or Thebarton in Adelaide as inner city suburbs that are being gentrified.

“There are some classic telltale signs to let you know when these suburbs are beginning to turn around and go through that gentrification,” he says. “Homes in the area are being renovated and repaired, shop fronts are being updated, local council is working on the retail and lifestyle features, housing commissions are being relocated and the State or Federal Governments are approving and constructing new roads and upgrading tram or train lines.”

The type of buyers moving into these areas is another key indication that the reputation has started to take a turn for the better. In his research to find the best performing suburbs, Koulizos says he often looks at the local shopping centre car park for signs that more money is moving into the local area.

“The suburbs may still be a little run down but you’ll notice, by looking at the cars that residents drive, that some young professionals for instance have moved into town, driving their Audis and BMWs. They just haven’t got around to fixing their lovely period homes,” he says.

Koulizos adds that an example of an area which has already gone through this process is Richmond in Melbourne. “Back in the 1960s and 1970s Richmond was popular with criminals and industry, and so the properties in the area was run down,” he says. “But because of its proximity to the city it slowly went through that gentrification period and the socio-economic demographic living in the area changed, lifting property values dramatically in the process,” he says.

Affordability
Kusher says the bulk of action in the current market is occurring in the more affordable sub $500,000 price ranges across the country.

“This will continue, particularly until the end of June when the First Home Owners Grant boost finished. Post June conditions are starting to look good for investors in this price range as well,” Kusher says. “If you’re looking to get capital growth in the next three- to five-year cycle, it will be achieved in the bottom end where there is scope to catch up.”

To increase your chances of buying in the right suburb, Zigomanis says make sure it has the key drivers such as prime location, good infrastructure and high-quality public transport, which will make it a good investment.

“You need to buy with these characteristics so you get good tenant demand on top of capital growth. This means buying close to the CBD, train lines and major transport corridors, and possibly close to employment hubs and universities to keep tenant demand up,” he says.

Kusher says buyers need to concentrate on areas that are lagging behind compared to their neighbours and find out why. If there is no reason why it should be, it is only a matter of time before affordability pushes buyers into the areas from surrounding hot spots.

“In Crows Nest for instance, there is a lot of commercial usage and the houses are quite small, but it still has that north shore address and is next door to North Sydney and the CBD. It also has all of those desirable amenities only at a lower price tag and that represents good value,” Kusher says.

 

Fastest growing suburbs (12 months)
Suburb	State	Property type	Number sold	Median price ($)	Quarterly growth	12-month growth
GREENWICH	NSW	Unit	30	490,000	n.a	49.85%
TERINGIE	SA	House	11	830,000	n.a	49.55%
DALLAS	VIC	Unit	10	222,500	0%	48.33%
UNDERDALE	SA	Unit	33	340,000	4.94%	47.83%
MCMAHONS POINT	NSW	House	12	1,675,000	-3.18%	47.45%
NORTH LAKES	QLD	Unit	30	460,920	16.69%	47.26%
TRUNDING	QLD	Unit	16	121,427	30.27%	47.18%
PARAFIELD GARDENS	SA	Unit	25	262,500	-0.94%	46.24%
PORT HUGHES	SA	House	11	400,000	14.61%	45.45%
SALISBURY	QLD	Unit	11	485,000	0%	44.78%
MIDDLE RIDGE	QLD	Unit	11	300,000	n.a	44.58%
QUEANBEYAN EAST	NSW	Unit	11	365,000	-1.35%	44.55%
SOUTH HEDLAND	WA	Unit	13	455,000	0%	44.44%
UNDERWOOD	QLD	Unit	47	367,500	0.07%	44.12%
COOLBINIA	WA	House	12	1,331,000	33.1%	43.12%
RIVER HEADS	QLD	House	33	415,000	18.57%	43.1%
FERRYDEN PARK	SA	Unit	23	310,000	11.11%	42.53%
WALKERVILLE	SA	Unit	26	431,475	2.74%	42.4%
BANJUP	WA	House	10	1,329,000	10.75%	41.38%
WEST LAKES	SA	Unit	58	465,000	19.85%	41.31%
KINGAROY	QLD	Unit	28	211,000	0%	40.67%
COOLANGATTA	QLD	House	16	885,000	20.82%	40.48%
SALISBURY	SA	Unit	85	189,000	2.72%	40%
CAULFIELD EAST	VIC	Unit	12	352,500	5.22%	39.88%
KENSINGTON	SA	House	12	535,000	11.46%	39.38%
OXLEY	QLD	Unit	11	345,000	8.15%	39.11%
TENNYSON	QLD	House	11	697,500	-7.46%	39.08%
TOORAK GARDENS	SA	Unit	25	326,000	8.67%	38.72%
PORTSEA	VIC	House	35	1,455,000	-3%	38.57%
JINDABYNE	NSW	House	12	482,500	11.56%	37.86%
LOCKHART	NSW	House	12	120,000	11.63%	37.14%
MOUNT EVELYN	VIC	Unit	13	344,000	18.62%	36.92%
MURWILLUMBAH	NSW	Unit	16	175,000	31.09%	35.66%
IRYMPLE	VIC	Unit	12	194,500	2.10%	35.30%
ST ANDREWS	VIC	House	11	500,000	1.52%	34.68%
SOUTH HEDLAND	WA	House	58	520,000	3.48%	34.37%
MOUNT HAWTHORN	WA	Unit	11	604,000	0.33%	34.22%
ROSEHILL	NSW	Unit	21	305,000	2.52%	34.07%
ECHUCA SOUTH	VIC	House	17	410,000	12.33%	33.99%
GILGANDRA	NSW	House	38	144,000	10.77%	33.95%
DUBBO	NSW	Unit	50	183,500	17.63%	33.21%
MELTON WEST	VIC	Unit	19	238,000	3.03%	32.59%
APPLECROSS	WA	House	34	2,250,000	7.14%	31.96%
TAMARAMA	NSW	Unit	26	880,000	3.23%	31.34%
EAGLEMONT	VIC	House	25	1,205,000	0.29%	30.62%
BOX HILL	VIC	Unit	83	377,500	0%	29.73%
NORTH BEACH	WA	Unit	18	837,500	19.64%	28.85%
KALGOORLIE	WA	Unit	16	297,000	6.07%	26.38%
KARAWARA	WA	House	15	718,000	-1.31%	25.74%
EAST FREMANTLE	WA	House	39	1,250,000	0.81%	22.55%

 

Source: RP Data

 

 

Top performers

NSW – Rosehill

 

Leafy Rosehill, in Sydney’s west, experienced almost 35% capital growth in unit prices over the 12 months to January this year, largely thanks to increased amenities and infrastructure being injected into the area.

Lisa Surian, director of Raine and Horne – Parramatta, says a train line that now links Rosehill to the northwestern and southwestern areas of Sydney from Carlingford to Clyde has been a big growth driver for the area. In addition to this, she says the presence of good public schools has encouraged renting families to buy in the area, pushing growth up significantly in the last year.

“There are a lot of families that are renting in the Rosehill area so that their kids can get a good education,” Surian says. “Now that rents are increasing and buying conditions are getting better, these families are buying into the area so they don’t disturb their kids’ education.”

Surian says Rosehill also has a large number of immigrants who set up base renting in the suburb because of its close proximity to good amenities and the employment hub of Parramatta.

“We’re at a stage where rental property vacancies are less than 1% in a rental market which is continuing to firm up. Yields are around 5%, which is a great incentive for investors,” she says. “Buyers can pick up a two bedroom unit for between $320,000 and $360,000 renting for $330–$350 a week.”

Surian says investors should buy into Rosehill with a long term perspective. “You can’t just come into the market and out again expecting to achieve huge amounts of growth.”

Suburb	State	Property type	Number sold	Median price ($)	Quarterly growth	12-month growth	Weekly median advertised rent ($)	Gross rental yield
Rosehill	NSW	Unit	21	305,000	2.52%	34.07%	400	6.82%

 

The riverside suburb of Tennyson is located just 5km from Brisbane’s CBD and has recently been boosted by the construction of an international tennis centre.

Nanette Lilley, principal and owner of Nanette Property Centre – Graceville, says the anticipation of the new centre helped boost the local house market exceptionally over the year to January. According to RP Data, Tennyson houses have grown nearly 40% over the past 12 months.

“There have also been luxury high rise units built next to the new tennis centre, priced between $900,000 to $3m plus, which has encouraged activity in other areas of the market,” Lilley says.

The Tennyson house market is a mixture of million dollar riverfront properties and lower priced homes priced between $300,000 and $400,000 renting for between $300 and $400 a week, according to Lillley.

“Now that tennis centre has gone in, there has been increased number of people into the area and the cheaper houses are in high demand. So this is going to add increased pressure on prices going forward and really Tennyson on the map,” she says.

Tennyson is a popular suburb for residents thanks to its close proximity to the Yeronga Shopping Centre and train station, both next door to the suburb.

Lilley says there is ongoing growth potential for investors especially those who want to buy existing houses in the more affordable streets just back from the river front and renovate for profit.

 

Suburb	State	Property type	Number sold	Median price ($)	Quarterly growth	12-month growth	Weekly median advertised rent ($)	Gross rental yield
Tennyson	QLD	House	11	697,500	-7.46%	39.08%	380	2.83%

Adelaide’s rising star, Kensington has experienced a substantial boost to its median house price over the past 12-months to January. The suburb is located just a short distance from the city (around 4km) and is considered a haven for lifestyle features and amenities.

Max Wundersitz, director of Ray White Norwood, says dwellings in Kensington are a mixture of older style single row cottages and home units. Due to the short supply of dwellings in the suburb, the high demand of late has been pushing prices forward.

“Buyers want to buy in the suburb because it has two good schools, great shops, pubs and cafes, and they can just walk or ride their bikes into the city,” he says. “We also have Norwood nearby which holds markets and festivals all year round and these are very popular.”

Wundersitz says buyers in Kensington’s housing market are willing to pay a premium to secure an address close to the highly regards local public schools.

“There has always been sound growth in Kensington and it will continue to be a sounds investment into the future,” he says.

Some of the more popular streets are Bridge Street and High Street.

 

Suburb	State	Property type	Number sold	Median price ($)	Quarterly growth	12-month growth	Weekly median advertised rent ($)	Gross rental yield
Kensington	SA	House	12	535,000	11.46%	39.38%	350	3.4%

Coastal mining town South Hedland has been on of the few resource centres across Australia to experience capital growth in the midst of a crisis for commodities. Houses have risen 34.37% in capital growth over the past year to January, according to RP Data.

On top of this, the increased demand for workers for the upgrade of local mines has allowed rental yields to skyrocket to levels between 10–12%.

“BHP is bringing in another 3,000 workers into the town, to complete its huge expansion project here,” says Jan Ford, principal of Jan Ford Real Estate – Port Hedland and Branch chairman of the Real Estate Institute of Western Australia – Pilbara area. “So the most recent growth has come from people buying investment properties looking to take advantage of the fact that there are only 5,200 houses in Port Hedland and an overriding demand for 15,000 houses.”

In the residential hub of South Hedland, the attraction of the coastal line is an added benefit for tenants and those buying for owner occupied purposes.

Ford says the Port Hedland council has initiated a plan to ensure sustainable long term, due to the risk that the single industry in town might be affected by further economic variables in the future.

“We plan to have 10 major industries in the next 10 years including a financial services industry, a green technology industry and a bigger tourism sector,” she says.

Investors can pick up a three bedroom house for $500,000 and earn $1,000 a week in rental return. Newer houses are likely to set buyers back around $1million and bring in $2,000 a week in rental income.

Strong gentrification in the region of late makes Walnut drive and the Lawson area the best parts of South Hedland to invest in for future growth, Ford says.

“A lot of the older areas and houses are being revamped,” she adds. “South Hedland is really growing. A lot of the older houses are being revamped and the council has set aside $80 million for infrastructure and $23 million for a town upgrade in the area.”

Suburb	State	Property type	Number sold	Median price ($)	Quarterly growth	12-month growth	Weekly median advertised rent ($)	Gross rental yield
South Hedland	WA	House	58	520,000	3.48%	34.37%	950	9.5%

 

Growth in the Melton region, 35km west of Melbourne, has been building strongly over the past five years, says Justin Carberry, senior sales consultant at Jen Gaunt – Melton. In the last year alone growth has climbed even further, with units in Melton West achieving 32.59%, in the 12 months up to January, according to RP Data.

Carberry says the southern and western areas of Melton have experienced a large amount of gentrification which has contributed heavily to the growth of property prices.

“The Government is spending upward of $15 billion on the Melton area setting it up as a big residential hub for the west of Melbourne. There is expected to be around 200,000 people living here in the next 10–15 years, so capital growth should continue,” she says. “The Deerpark Bypass has also recently opened up shortening the trip from Melton into the CBD from over an hour to around 40 minutes.”

Melton West has three high schools and three primary schools and benefits from the number of shopping centres in and outside of the suburb. The newest and biggest of the lot is Woodgrove Shopping Centre which will be built in five stages, with stage one now complete.

Increasing demand for dwellings in the area is another key growth driver for the Melton thanks to its affordability – especially in Melton West where many houses are new stock.

“You can buy a 600-metre-square block of land for between $110,000– $130,000 in Melton West,” he says. “Growth in the west of Melton is also driven by its good reputation and the fact that titled land is very scarce but there looks to be more coming onto the market in the next 12 months.”

There were 19 unit sales in the Melton West region over the year to December 2008, although the house market is where the most action was experienced. An extraordinary 251 houses have changed hands in Melton West during the same period.

Houses in Melton West are currently selling for between $220,000–$230,000 and renting for around $250 a week. Units sell for under the $200,000 mark, although a limited supply means strong competition for the stock that comes on the market.

Carberry recommends investors look at buying new houses to take advantage of depreciation. The West Lakes estate and Arnold’s creek are two very popular area of West Melton he says.

“Anywhere over the Western Freeway would be a great investment also, for those buyers who would like to capitalise on the renovation potential of existing houses priced between $180,000–$190,000.”

 

Suburb	State	Property type	Number sold	Median price ($)	Quarterly growth	12-month growth	Weekly median advertised rent ($)	Gross rental yield
Melton West	VIC	Unit	19	238,000	3.03%	32.59%	250	5.46%

Checklist for finding high growth suburbs