While some property investors prioritise rental yield, that is, how much income a property earns, as a percentage of its value, others see capital growth as the ultimate objective.
There is no guaranteed way to predict the future capital growth of a suburb, but there are growth indicators that can be a strong sign that property prices will increase.
In the current buying climate, with historically low listings and strong demand for available properties, doing your homework is key before buying an investment property. Here are four signs to look out for when researching a suburb’s capital growth potential.
Demand is likely to outweigh supply
Ideally, if you can find a suburb where demand is likely to exceed supply, that’s usually a strong indicator of potential growth.
Look at how much available land there is in the suburb. Is there much more capacity to build new houses? If the answer is ‘no’, then property prices may go up.
Also consider the likely population growth in coming years. If more people are expected to move to the area, demand for housing will increase, thereby potentially pushing up dwelling values.
Checking the average property days on the market, discounting rates and auction clearance rates can also help you ascertain the level of demand in a suburb.
There’s strong investment in infrastructure
Say the government is investing in new infrastructure in the area – maybe with a new school, hospital or train line. That may help push housing prices upwards in the near future.
New or improved transport links can make a suburb more attractive to commuters, for example, while other investments in infrastructure can create employment, increasing the demand for housing among workers.
Do some digging online to see what planned infrastructure works are in the pipeline. The local council can also be a good resource to investigate upcoming infrastructure projects.
The suburb is being gentrified
When buyers with higher incomes move into a lower socio-economic suburb and begin making improvements, gentrification happens.
The average income in the area increases, and those individuals spend money on improving the suburb (whether by renovating or by spending locally).
Signs of gentrification include:
- New hospitality or retail venues are springing up in previously uninviting areas
- Established homes are being renovated
- New residential buildings are being built
- Larger infrastructure projects are in the pipeline
- A younger demographic is moving in.
Once a suburb undergoes gentrification, property prices often head north, so check for the signs that things are heading that way.
Nearby suburbs are experiencing capital growth
If a suburb nearby has experienced a surge in prices in recent years, chances are that growth could trickle across to neighbouring areas.
When you’re doing your suburb research, consider areas that have experienced recent price growth. If there are surrounding suburbs that are more affordable and yet to experience a boom, they may be worth investigating for potential investment opportunities.
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